If you’re trying to buy a house or car or seeking a new job, making the effort to boost your credit score could mean the difference between success and disappointment, especially if your credit profile is marginal. Even if you’re not in the market for new credit, working to improve your credit score is a good strategy in general. Whether your credit is poor, so-so or even pretty good, chances are it could be even better.
On the other hand, if you’re seeking a silver bullet or magic wand, you are bound to be disappointed. While some of the strategies below can result in a dramatic rise in your credit score within a short period of time, there is no quick fix where improving your credit score is concerned. Nonetheless, following these tips will greatly improve your odds of achieving a higher credit score.
1. Pay Bills on Time
Your payment history counts for a whopping 35 percent of your overall credit score. Maintaining a current payment record is an excellent way to boost your credit score substantially. On the other hand, falling behind on your payments for even one account is an almost guaranteed way to sink your FICO score considerably.
2. Reduce Debt Levels (or Increase Income)
Another significant factor in your FICO score is your debt-to-income ratio. Therefore, reducing your debt levels can improve your credit score quite a lot. If your expenses are already cut to the bone, you might look into boosting your income. Not only will your credit score likely improve, you may feel less overall stress about your finances.
3. Concentrate Credit Inquiries
When you are house hunting, you will probably seek out the best possible interest rate for your mortgage. Likewise, you will probably shop around for the lowest interest rates for a car loan if you’re in the market for a new ride. Credit reporting agencies account for that by counting similar credit inquiries made within a limited period of time as one “hard” credit inquiry, which translates to a lesser hit on your credit score.
4. Leave Old Accounts Open
The age of your oldest active accounts also has a bearing on your credit score. Therefore it’s a good idea to leave old accounts open if they are in good standing. This is especially true for credit cards with high credit limits that you don’t use often – leaving those accounts open also improves your credit utilization ratio, which also boosts your score.
5. Re-schedule Payment Due Dates
Many accounts give you the option of scheduling your due dates. Take advantage of this convenience and schedule your due dates for one or two days after your pay dates if you are a wage earner so that you are more likely to have cash on hand to pay. That’s another way to help maintain consistent on-time bill payments.
6. Correct Credit Report Errors
You are entitled to obtain one free copy of your credit report annually from each of the three major credit reporting agencies: Experian, Equifax and TransUnion. If you space your credit reports every four months, you could monitor your credit year round for free. Monitoring your credit reports and correcting errors is a nearly effortless way to improve your FICO score.
7. Establish and Maintain a Mix of Credit
Maintaining a perfect on-time payment record for one credit card account is great. But maintaining a record of on-time payments on a credit card, and your mortgage and maybe a car note is even better. That’s because credit cards count as revolving credit while mortgages and car notes are categorized as installment debt. Responsibly handling both types of debt definitely improves your credit report and FICO score.
8. Clean Up Overdue Debts
OK, so you messed up one or two accounts in the past. It happens. But if at all possible, you should clean up those accounts that are reported as delinquent or as write offs rather than leaving them in their present status. Paying off those bad debts should result in your credit report reflecting them as paid in full (and if not, write to the credit reporting agencies to correct the errors). That looks much better on your credit report and will in turn improve your credit score.
9. Don’t Telegraph Future Credit Problems
Are you going through a nasty dispute with a partner or (soon to be ex) spouse? Avoid paying attorney’s fees with a credit card, taking a rash of cash advances or using your credit card at a pawn shop. While these actions themselves don’t have a direct adverse impact on your credit report or your FICO score, such behaviors could indicate that you’re having money problems. Merchants and credit card companies might get spooked and reduce your credit limits or even close your accounts – which definitely would adversely affect your FICO score.
10. Consolidate Small Balances
Let’s say you owe 200 dollars on one card and 450 dollars on another and 135 dollars on a third credit card. If possible, pay off those small debts either with a personal loan or by consolidating them onto a single (hopefully low-interest) credit card. Your credit report will reflect one monthly payment instead of several, which can improve your credit score. Just don’t take the opportunity to run up new debts on your paid off cards, or you will defeat the purpose of consolidating your old debts.
Improving Your Credit Score
If you know you’ll be seeking new credit in the foreseeable future, begin taking action as soon as possible to clean up your credit. Allowing at least a year is ideal, but even beginning several months in advance is good. You should also sign up for services like Credit Karma and Mint, which provide free credit scores along with copies of your credit report. That way, you can monitor the progress of your credit boosting efforts.
Although improving your credit score requires both effort and patience, the above examples illustrate that many of the strategies available to improve your credit score involve common sense actions that you should be taking anyway. That’s the good news: nearly everyone can improve his or her credit score significantly.