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Credit Management

Six Tips That Could Improve Your Credit Score

Excellent credit is something to strive for, but for most of us, we’re just not there yet. In fact, according to ValuePenguin, the average credit score is less than 700, which is considered only an average/fair score in the eyes of many lenders. Your credit score (also known as a FICO or a Vantage score) plays a critical role in whether or not you’re approved for credit and take into consideration your payment history, length of credit history, credit utilization, new credit accounts and credit mix.

If you’ve gone through some trying financial times that took a hit on your credit, you’re probably wondering how to improve your credit score. If the words credit score strike fear into your heart, you’re not alone. In fact, 56% of American consumers have credit scores lower than 700 according to a study by the Corporation for Enterprise Development.

Good credit is something to strive for and may qualify you for better interest rates on loans and credit cards. A good credit score is also insurance on a rainy day– if you’re faced with an expensive car or house repair, medical treatment not covered by insurance, or a family emergency, you’ll likely be able to get a loan on good terms to address these large expenses.

Here are six tips on how to improve your credit score that you can start working on today.

Monitor your credit closely

There’s no reason your credit score should be a mystery. To know how to improve your credit score, you have to be knowledgeable about tracking its status. Thanks to consumer credit monitoring services, tracking your credit score has never been easier. And because of rampant data breaches, close monitoring of credit has never been more important—even if you have excellent credit.

Taking just a few minutes to sign up for a credit monitoring service is a great investment in your financial well-being. By enrolling, you can get your credit score updated monthly at no cost. You can also easily see the factors that contribute to your credit score, so you can work to improve the things that are holding you back from a higher number. 

Increase your credit limits

To improve your credit score, you must lower the proportion of the debt you owe to the credit you have. Aim for a percentage of 30% or less. Paying down debt can take a while, but if you can raise limits on existing credit cards, you may be able to lower your credit utilization ratio (the amount you owe divided by your credit limit) with just a few minutes of effort. (Opening new credit cards can have the opposite effect.) Call your credit card issuers to see if they will raise your limits.

But take caution and be honest with yourself: If higher credit card limits have caused you to spend more in the past, this tactic just isn’t worth it. Knowing how to improve your credit score also involves knowing yourself and what’s right for you. If this option isn’t ideal for your lifestyle, focus on the following steps.

Pay down your (revolving) debts

This one may seem obvious—the less debt you have, the better your score is — but not all debts are created equal. For example, a home mortgage or a student loan won’t count against you as long as you make regular, timely payments.

Focus on paying down your revolving debts: credit cards and things you have purchased through a financing plan, such as a new TV or computer. Pay off your small balances right away. Once you’ve paid off a credit card, don’t cancel it. Your free-and-clear line of credit will help to lower your credit utilization ratio.

Charge less to your credit card

Here’s a surprising thing about credit cards: Even if you pay your entire balance off every single month, using them could still be hurting your credit score. That’s because credit bureaus look at your statements’ monthly closing balances, not whether you’ve carried a balance. Using your credit cards less and lowering your statement balances is an easy way to improve your credit score, even if you already have good credit.

Consolidate your debt

Debt consolidation has two important goals, and they’re both good news for your credit score: 1) increasing the average age of your revolving lines of credit without reducing your total credit limit, and 2) lowering the interest you’ll pay over the lifetime of your current debts. Consolidating debt can also help you to pay off debts more quickly.

If you have several credit cards from a single issuer, ask to consolidate all of your credit cards onto the oldest card. If you qualify, consolidating credit card debt via a marketplace lender such as Prosper can help you to save even more because rates are often lower than a credit card.  The idea is to stop using your credit cards, not to close them.

Be patient, pay on time and spend wisely

Like paying off your debts, raising your credit score doesn’t happen overnight. While it’s great to follow the steps above to master how to improve your credit score, nothing beats the basics of paying your bills on time every month, spending responsibly, and using your credit cards less (or not at all) will get you there.

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