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How to Improve Your Credit Score
It's possible to improve your credit scores by following a few simple steps, including: opening accounts that report to the credit bureaus, maintaining low balances and paying your bills on time. You can try to boost your credit score by getting credit for paying bills like your cell phone, utilities, and popular streaming service, free, with Experian Boost®ø. However, it can be difficult to know where to start. Whether you're building your credit from scratch or rebuilding after your scores have taken a hit, it's important to learn how your scores are calculated and the basic ways to improve them. Then, you can dive into more detailed guides based on your situation.
HOW CAN WE HELP?
You can improve your credit score by opening accounts that report to the credit bureaus, maintaining low balances, paying your bills on time and limiting how often you apply for new accounts.
1. Build Your Credit File
Opening new accounts that will be reported to the major credit bureaus—most major lenders and card issuers report to all three—is an important first step in building your credit file. You can't start laying down a good track record as a borrower until there are accounts in your name, so having at least several open and active credit accounts can be helpful. These could include credit-builder loans or secured cards if you're starting out or have a low score—or a great rewards credit card with no annual fee if you're trying to improve an established good score. Getting added as an authorized user on someone else's credit card can also help, assuming they use the card responsibly. If you're starting from scratch with no credit file at all, the most important step is simply getting a credit report with a bureau. With Experian Go™, you can sign up for a free Experian membership and create an Experian credit report. Then you can use options like becoming an authorized user or signing up for Experian Boost to build your credit. Experian Boost is a tool you can use to add positive utility, cellphone and streaming service payments to your Experian credit report. These on-time payments wouldn't otherwise be added to your credit report, but using Experian Boost means they'll be factored into your Experian FICO® Scores☉ .
2. Don't Miss Payments
Your payment history is one of the most important factors in determining your credit scores, and having a long history of on-time payments can help you achieve excellent credit scores. To do this, you'll need to make sure you don't miss loan or credit card payments by more than 29 days—payments that are at least 30 days late can be reported to the credit bureaus and hurt your credit scores. Setting up automatic payments for the minimum amount due can help you avoid missing a payment (as long as you're careful not to overdraft your bank account). If you're having trouble affording a bill, reach out to your credit card issuer right away to try and discuss hardship options. Staying on top of accounts that don't generally appear on your credit reports (gym memberships and subscription services, for instance) can also be important. The on-time payments might not help your credit, but the account being sent to collections could still cause your scores to dip.
3. Catch Up On Past-Due Accounts
If you're behind on your bills, bringing them current could help. While a late payment can remain on your credit report for up to seven years, having all your accounts current can be good for your scores. Additionally, it stops further late payments from being added to your credit history as well as additional late fees. For those having trouble with credit card debt, talking to a credit counselor and getting on a debt management plan (DMP) could be a good option. The counselor may be able to negotiate lower payments and interest rates, and get card issuers to bring your accounts current.
4. Pay Down Revolving Account Balances
Even if you're not behind on your bills, having a high balance on revolving credit accounts can lead to a high credit utilization rate and hurt your scores. Revolving accounts include credit cards and lines of credit, and maintaining a low balance on them relative to their credit limits can help you improve your scores. Those with the highest credit scores tend to keep their credit utilization ratio in the low single digits.
5. Limit How Often You Apply for New Accounts
While you may need to open accounts to build your credit file, you generally want to limit how often you submit credit applications. Each application can lead to a hard inquiry, which may hurt your scores a little, but inquiries can add up and have a compounding effect on your credit scores. Opening a new account will also decrease your average age of accounts, and that could also hurt your scores. Inquiries and the average age of your accounts are minor scoring factors, but you still want to be cautious about how many applications you submit. One exception is when you're rate shopping for certain types of loans, such as an auto loan or mortgage. Credit scoring models recognize that rate shopping isn't risky behavior and may ignore some inquiries if they occur within the span of a couple of weeks.
How Credit Scores Are Calculated
Credit scores are determined by computer algorithms called scoring models that analyze one of your credit reports from Experian, TransUnion or Equifax. Scoring models (and there are many) may use different factors, or the same factors weighted differently, to determine a particular score. However, consumer credit scores generally share a few similarities: Scores are calculated based on the information in one of your credit reports. Scoring models try to predict the likelihood that a borrower will be 90 days late on a bill in the next 24 months. A higher score indicates a person is less likely to fall behind on a bill, and vice versa. The vast majority of lenders use credit scores calculated by FICO and VantageScore® scoring models. The most recent versions of their generic credit scores use a score range of 300 to 850—and a score in the mid-600s or higher is often considered a good credit score. (Generic means they're created for any type of lender. FICO also creates industry-specific scoring models for auto lenders and card issuers that range from 250 to 900). Considering how different credit scores use the same underlying information to try and predict the same outcome, it might not be surprising that the steps you take to try to improve one score can help increase all your credit scores.