Having a good credit score is crucial. Getting the best interest rates on auto loans and mortgages requires a high credit score. Unfortunately, improving your credit score is easier said than done.
Student loans and credit card debt — two common fixtures of modern life — can make it difficult to sustain a decent score. It takes more than just switching to a debit card to bump up your score, though. Elevating your credit score requires careful, strategic action.
Here’s what to do if your credit score isn’t where you’d like it to be:
1. Check Your Credit Report
Credit report errors are common. According to the U.S. Federal Trade Commission, or FTC, one out of five Americans has errors in their credit report — errors that can have a serious impact on your credit score.
It’s important to review your credit report carefully and regularly. You want to look out for incorrect personal information, duplicate accounts, fraudulent activity, data errors, or any other irregularities.
If you do find an error, dispute it as soon as possible. You can submit a correction to the credit bureau online or via mail for free.
You should also reach out to the creditor overseeing the account, as they can usually correct the information on your reports. Fixing these errors can result in a huge improvement in your score in a short period of time.
2. Don’t Cancel Unused Credit Cards
You might think it’s a good strategy to close your account on a credit card you no longer use. After all, it’s just taking up space in the back of your wallet, right? Not necessarily.
Closing an unused credit card could potentially raise your credit score. That’s why most financial experts would advise you to keep old accounts open.
The length of your credit history is a huge factor that determines your credit score. The older your account is, the better.
Another factor to keep in mind is your credit utilization ratio, which is how much you currently owe divided by your credit limit. This ratio takes every account into consideration, so a positive history on a credit card you’re no longer using could actually boost your credit score.
3. Consider Opening A New Credit Card
Opening up a new credit card can improve your score. It increases your total available credit, which lowers your credit utilization ratio.
That being said, there are a few things you should consider before taking this step. Consider the annual fee: If it’s too high, opening a new account might not be worth it. You also don’t want to have an excessive amount of accounts open at any given time. Get new credit cards as they become manageable and useful to you — no faster, no slower.
4. Ask For A Higher Credit Limit
If your credit limit increases while your balance stays the same, it will look like you’re using your credit more responsibly by spending a smaller portion of it. While not every card issuer will raise your credit limit at will, most are willing to consider increases. Any boost you could get will have a positive impact on your credit score.
If you’re able to increase your limit, make sure you’re not going to spend more simply because your limit is higher. Doing so could counteract the benefits of increasing your credit limit in the first place, dragging your score back to where it was before.
5. Make Frequent Payments Throughout The Month
Making small payments throughout the month can improve your score by keeping your credit card balance low. The lower your balance, the better — and if it’s outstanding, the less interest you’ll have to pay.
Paying small amounts twice a month will accrue less interest than if you pay the entire balance at the end of the month. Making frequent payments also decreases the chance of incurring onerous fees. Win-win: You save you money and improve your score.
6. Be Strategic About Paying Down Your Debt
To improve your credit score, you need to be smart about how you’re paying off debt. It’s a good idea to pay credit cards with the highest interest rate first. The longer interest accrues, the more you’ll end up paying — especially if you have a high balance on top of a high interest rate.
If you’re struggling to prioritize your payments, make a list of your debt with the highest interest rates on top. Once you do, put as much money as possible toward the debt at the top.
Keep in mind that you should still be making monthly payments on each debt. If you can allocate more to the one with the higher interest rate, you’ll be able to pay that off quickly. Repeat the process by then focusing on the debt with the next-highest interest rate, doing so over and over again until your debts are fully paid.
7. Pay Your Bills On Time
Seems like a no-brainer, right? While it may sound like a breeze, it’s far from the norm: According to a report by the Aite Group, 46% of Americans fail to regularly pay their bills on time. This applies to all bills ranging from that minor Netflix bill each month, to the larger debts such as unpaid taxes. The good news is that tax debts or liens do not impact your credit score—that is, unless you pay your tax debts with a credit card or some sort of loan. Just make sure you take care of your tax bill as soon as you are aware of it. There are even free tax filing programs available that make it easy. Aside from taxes though, each and every bill is impactful as it shows creditors that you can make your payments on time every time.
On-time payments are the No. 1 factor affecting credit scores. If you’re experiencing a financial crisis, simply avoiding your bills isn’t the answer. Instead, talk to your credit card issuers or lenders about entering a payment plan. The good news is that, with positive credit behavior, the negative impact of a missed or late payment will fade over time.
After using the steps above to fix your credit, you’ll need to take steps to keep that credit score high. Continue to pay off your balance on time, and keep your credit utilization rate below 30%. Regularly check your credit for any fraudulent activity. You’ve gotten your score where you want it; now keep it that way.
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