Hands holding a tablet displaying a credit score of 810
Money Management

Simple Ways to Improve Your Credit Score

If you’re looking to improve your credit score, it’s important to understand that a drastic change won’t happen overnight. The credit bureaus use proprietary, complicated algorithms that consider a variety of factors to determine your score, including how long you’ve had credit, the amount of available credit you have access to, your payment habits, and more. So when your score is lower than you’d like, it can make your ability to access more credit challenging. And depending on why your score is low, it could be harder to increase quickly. All that said, there are ways to give your score a quick boost:

Pay Off Debt to Increase Your Credit Score

One of the fastest ways to increase your credit score is to pay off outstanding debt and get caught up on any late payments or balances in collections. In as little as a few weeks after paying off a credit card, you could see a big spike in that number.

Keep Balances Low on Credit Cards

If you don’t pay off credit cards in full each month, start by paying down your balances to bring the total outstanding revolving debt to less than 30% of your available credit. For example, if you have one credit card with a $5,000 limit and another with a $10,000 limit, you shouldn’t let your combined balance on those two cards go above $4,500. A good rule of thumb is to ensure that none of the individual cards have a balance over 30% either. In this example, you’d want no more than a $1,500 balance on the $5,000 card, and under $3,000 on the $10,000 card.

What we’ve explained above is known as your credit utilization ratio. The credit bureaus put a heavy emphasis on this to determine your financial habits. If you keep a low ratio, your score will be higher. Alternatively, if you rack up debt on each of your open credit lines above that 30% threshold and carry it over month-to-month, expect your score to be negatively impacted. The sooner you can get those balances paid down, the sooner your score will tick up.

Don’t Open Too Many Credit Cards

You might think an easy way to improve your credit utilization ratio would be to open a few more credit cards. But while this gives you more available credit, it won’t likely increase your score – at least not right away. In fact, if you open too many new credit cards in a short period of time, you’ll actually hurt your score. Each time you apply for credit, there is a hard inquiry into your credit history. Each hard inquiry lives on your credit report for about two years. Too many of them too close together is an indication that you’re having a tough time managing your finances. As a result, your score could go even lower, despite the additional available credit.

Pay Your Bills on Time

If you don’t have much credit history, or you’re working to recover from a financial setback that affected your score, it’s critical to pay your bills on time every month – and not just your loans and credit cards. Utility payments, your cell phone bill, and your rent are part of that equation too because if you don’t pay those bills and end up in collections, the credit bureaus will know, and they’ll ding you for it. A late payment of 30 days or more could stay on your credit report and impact your score as long as seven years after the missed payment.

Look for Inaccuracies

Sometimes a low credit score is the result of a reporting error – or worse, identity theft. That’s why reviewing your credit report at least once per year is a must. If a lender made an error, you can contact them to correct the mistake, which should improve your score fairly quickly. And if you’re the unfortunate victim of an identity theft, you’ll have to work with the credit bureaus and lenders involved to right the situation and clear up your score. It’s a good idea to sign up for regular credit monitoring to alert you to potential theft instances right away.

Improving Your Credit Score Takes Time

Having a good credit score means you’ll have the ability to borrow money easier and at a lower cost to you. A lower score means you’ll face higher rates to borrow money – or be denied for credit altogether. If your credit score is below average, don’t despair. Improving your credit is about staying consistent over time. The best advice is to divert as much of your discretionary budget as possible to paying down your debt, staying on top of your monthly payments, and not taking on new debt. From there it’s a waiting game. Slowly, but surely, you’ll see that number increase.