If you’re like most people, you don’t think much about your credit score. You probably know that a good credit score can help you qualify for a loan or get a better rate on a credit card, but those aren’t things you need very often. So most of the time, this number doesn’t even cross your mind.
It should, though. The truth is, a bad credit score can affect your life in all kinds of ways. Many types of businesses check your credit score to get an idea of how reliable you are. A low score can hurt your chances of getting a job, an apartment, or a decent rate on your auto insurance.
Luckily, a bad credit score isn’t a permanent problem. By following a few simple rules, you can clean up your credit history and start nudging that credit score up. Over time, you can raise your score to a level that will help you, instead of hurt you.
How to Improve Your Credit Score
Your credit score is based on the information in your credit report. This is a summary of your borrowing behavior, put together by one of the three major credit bureaus: Experian, Equifax, and Transunion. You actually have three credit reports, one from each bureau.
There are several companies that use this info to create credit scores. The main ones are FICO and VantageScore. Each company uses its own formula to calculate your credit score.
However, both FICO and VantageScore focus on the same major factors in your credit history. These include the size of your balance, the number and type of accounts, and whether you make payments on time. Anything you do to improve any of these factors will improve all your credit scores across the board.
1. Review Your Credit Report
The major credit bureaus rely on lenders for their information, and lenders aren’t perfect. Sometimes they make mistakes, like saying you still owe money on a loan you paid off years ago. Fixing credit report errors like this is one of the fastest ways to boost your score.
Under U.S. law, you are entitled to a free annual credit report from each of the three bureaus. You can order these from AnnualCreditReport.com. If you spread them out across the year, one every four months, you can keep an eye on your credit regularly and spot mistakes quickly.
Check your credit report to make sure all listed accounts are really yours, the balances are correct, and all information about late or missed payments is true. Also look for negative items, such as late payments, that are outdated. In most cases, bad marks like this are supposed to drop off your report after seven years.
If you find any errors, contact the credit bureau to dispute them. All three bureaus have online forms on their websites for filing a dispute. You can also dispute errors by phone or snail mail. Once you do, the agency has 30 days to investigate your complaint.
If the credit bureau finds there was an error, it will correct it and send you a copy of your updated report for free. It will also pass on the information to the lender who made the mistake, as well as to the other two bureaus. You should see your credit score improve right away.
2. Pay Your Bills on Time
On-time payments are the single biggest ingredient in your credit score. If you’re just a few days late paying your bill, it can make a serious dent in your credit rating. And the later you are with your payment, the more it hurts your score.
If you’ve been late paying bills in the past, you can’t wipe out that mistake. However, you can outweigh it by getting on top of your payments and staying on top of them.
Your recent behavior counts more heavily in your credit score, so old mistakes will gradually fade into the background. The longer you keep paying your bills on time, the more your score will increase.
If you have trouble remembering to pay your bills, setting up payment reminders can help. Many banks offer this service as part of their online banking. When you have a bill coming due, the bank sends you an e-mail or text message to remind you to pay it.
You can also set up an automatic bill payment plan to pay bills immediately with no action from you. However, these plans don’t give you a chance to check your bill for mistakes before you pay it. Also, they only make the minimum payment on your credit card bill, which doesn’t help you pay down your balance.
3. Pay Off Collection Accounts
The worst kind of debt to have on your credit report is a collection account. This is a bill that’s gone unpaid so long that the lender has handed it over to a debt collector. When this happens, your credit score takes an immediate nosedive.
Unfortunately, paying off a collection account doesn’t remove it from your credit report. It remains there for seven years no matter what. However, it can sometimes reduce the amount of damage it does to your credit score. The benefit depends on the credit scoring model.
The VantageScore and some newer FICO scores treat a paid-off collection account as less negative than an unpaid one. But FICO 8, the credit score most lenders use, still factors in collection accounts even after they’re paid off.
Thus, your FICO score may not show an immediate improvement when you pay off a collection account. However, your score will recover gradually as you add more on-time payments to your credit report.
4. Lower Your Credit Utilization Ratio
Next to paying on time, the biggest factor in your credit score is how much credit you use.
The portion of your available credit that you’re using is called your credit utilization ratio or credit utilization rate. For instance, if you have a loan with a principal of $3,000, and your remaining balance on that loan is $1,500, your credit utilization rate is 50%.
The credit bureaus recommend keeping this rate no higher than 30%. In this example, you’d want to get your balance down to $900 or less. Users with the highest credit scores typically use still less of their available credit — no more than 10%, or $300.
You can lower your credit utilization ratio by paying down your balances. To pay off your credit cards quickly, tighten your belt and set aside a fixed sum each month to put toward the debt. If you can’t manage that, try debt snowflaking — making small payments whenever you have a little extra cash.
If you owe money on multiple credit accounts, pay off the smallest ones first. Owing money on multiple accounts hurts your FICO score more than having just one big balance. Use the debt snowball method, to pay off small balances quickly and then carry that momentum forward to tackle the bigger ones.
Once you get your credit utilization down to 30%, aim to keep it there. Limit your credit card use and pay your balance in full each month. It also helps to make payments early. If you pay down your balance throughout the month, even before you even get your bill, it will never get too high.
5. Request a Credit Limit Increase
There are two ways to lower your credit utilization ratio. You can make the balance lower or make your available credit higher.
Suppose you owe $900 on a credit card with a $1,000 limit. That’s a credit utilization ratio of 90%, which is very high. But if your card’s credit limit goes up from $1,000 to $3,000, suddenly you’re only using 30% of your credit.
Lenders set your credit limit based on several factors, including your payment history, your household income, and how long you’ve had the card. If any of these factors have improved, there’s a good chance you can get a credit limit increase if you ask for it.
Most credit card issuers allow you to request a credit limit increase online or over the phone. Some of them even raise your credit limit automatically when your credit score improves — so anything you do to boost your credit score could help you increase your available credit, too.
Of course, this only helps if you don’t use any of your new, higher credit. So, if your credit limit goes from $1,000 to $3,000, don’t start spending an extra $2,000. Keep your balance to $900 or less, and your credit utilization ratio will stay low.
6. Don’t Close Old Credit Cards
Some people think having old debts on their credit reports is a bad thing. As soon as they pay off a credit card, they rush to close the account. If they pay off a car loan, they call up the credit bureaus to try and get that debt off their record.
This is entirely backward. Any debt that you’ve paid off on time is good for your score. And the longer those good debts stay on your record, the more they help you.
In fact, keeping an old credit card open can be a good idea, even if you never use it anymore.
For one thing, it increases your available credit. All that credit sitting unused keeps your credit utilization rate low. The higher the credit limit is on the card, the more it helps your score.
Second, an older card is a helpful part of your credit history. The older your oldest open account is, the better it is for your credit score. Canceling that old card will shorten your credit history and hurt your score. So it’s worth keeping the card even if it just sits unused in a drawer.
7. Add to Your Credit Mix
Lenders prefer borrowers with experience paying off several different types of loans. If you have a credit card, an auto loan, and a mortgage, that tells them more about how well you handle debt than if you had credit card debt only.
Your credit score factors in both current loans and ones you’ve paid off. Together, they make up about 10% of your score. So if you currently have only one type of credit, adding another could help give your score a little boost.
If you have no credit cards, apply for one. Your choices may be limited, but there are several good credit card for users with bad credit. One option is a secured credit card, which lets you basically borrow money from yourself to establish a pattern of good behavior.
If you have only credit cards, consider adding an installment loan. One possibility is a credit builder loan. These loans are designed specifically for users trying to build credit history, so you don’t need good credit to get one.
8. Limit How Often You Apply for New Credit
Whenever you apply for a new loan, the lender pulls your credit report to check it. This causes a small dip in your credit score because seeking new credit can be a sign that you’re short of cash.
Fortunately, only “hard inquiries,” or credit inquiries from lenders, have this effect. Requesting and checking your own credit report doesn’t hurt your score.
Usually, the ding to your credit is minor. In most cases, a single hard inquiry takes less than five points off your credit score. Also, only inquiries in the past 12 months affect your score, so even this minor drop doesn’t last long.
However, if you apply for a bunch of new accounts in a short period, that’s a different story. Applying for lots of credit raises a red flag for lenders, and it can seriously hurt your score.
Fortunately, this is only true if you apply for several different loans at once. If you’re just shopping around for the best rate on one loan, that’s no problem. Most credit scores treat multiple hard inquiries for mortgage, auto, or student loans like a single inquiry.
Taking out new loans too often can also hurt you in another way. Just as keeping old accounts helps your score, having lots of newer accounts harms it. If you open one or two new credit cards each year, your average age of credit will be lower than if you stick to the cards you have.
9. Become an Authorized User
Another way to build or improve your credit is to become an authorized user on someone else’s credit card account. This allows their good borrowing behavior to show up in your credit report. You don’t even need to use the card. You can just “piggyback” off their use of it.
Of course, this only works if the main account holder uses the card responsibly. The best person to piggyback on is a trusted friend or relative who has a high credit limit, keeps their balance low, and always pays on time.
To improve all your credit scores, make sure the credit card in question reports to all the major credit bureaus. This shouldn’t be a problem, as most major credit cards do.
10. Sign Up for Services Like Experian Boost
Experian, one of the three credit reporting agencies, offers a feature called Experian Boost. It can help your credit score by giving you credit for cell phone and utility payments. Because payment history is the biggest piece of your credit score, this can improve your score fast.
When you sign up for Experian Boost, you’ll connect the bank account you use to make your payments. You will then be able to choose and verify the payments you’ve made that will help boost your payment history. Those payments will show up in your Experian credit score, raising it instantly.
Another service that can help bolster a limited credit file is UltraFICO. It lets you factor your banking history — including checking, savings, and money market accounts — into your credit report. This helps consumers with little borrowing experience build credit history.
If you rent your home, consider using a rent reporting service, such as LevelCredit or Rental Kharma. These services add on-time rent payments to your credit reports. Not all scoring models consider these payments, but they’ll improve your VantageScore.
Many of the changes on this list can improve your credit score within a month or so. These include fixing credit report errors, raising credit limits, and paying off collection accounts.
However, other changes take longer. If you have loads of late payments on your credit report, it will take months or years of on-time payments to balance them out. Similarly, it takes time to build credit as an authorized user on someone else’s account. And paying down your balances to lower your credit utilization isn’t usually something you can do overnight.
You can think of building good credit like losing weight. It takes time to get into bad shape, and it takes time to get back out. But as you start using credit responsibly, you’ll see a slow, steady increase in your score over time.
Another similarity to weight loss: You have to keep up your good habits to maintain your improved credit score. One tool that can help is credit monitoring. Both free and paid services can help you keep an eye on your credit score and make sure it’s staying on track.