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6 Changes to Make If You Want To Improve Your Credit Score According To Experts
Some numbers you can pretend that you’re not sweating—like your age and weight, but three digits you should almost be obsessed with are those that make up your credit score.
A credit score is a linchpin in your financial world. It paints a picture for lenders, employers, landlords, insurers, and others about how reliable and responsible you are financially.
The ramifications are huge. For example, a lender looks at your credit score to help determine if they’ll loan you money and, if your score is high, you’ll likely be offered lower interest rates. That’s no small matter for a mortgage.
So, what’s a good credit score? While the three major credit bureaus, Experian, Equifax, and TransUnion, score differently, scores typically range from 300 to 850. A score of 300-579 is considered poor, 580-669 fair, 670-739, good, 740-799 very good, and 800 and above excellent. You can request a free copy of your credit report annually at AnnualCreditReport.com.
Just how is the magic number derived? There are several key components. Thirty-five percent is payment history, 30% is amounts owed, 15% length of credit history, 10% credit mix and 10% new credit.
How to improve your credit score
What can you do to improve this all-important number? Plenty.
Pay your bills on time
“One of the best things you can do is pay your bills on time,” says Chris Fred, head of US Credit Cards and Unsecured Lending at TD Bank. “Schedule payments or set calendar reminders around bill due dates. You don't need to pay the entire balance for a payment to count as on-time—you just need to pay the minimum due,” he adds.
Use credit sparingly
Lenders will look at not only how much credit you have, but how much you owe. They want to see that you are not using much of your available credit. “You can lower your utilization by paying off your debt. Aim to keep your utilization below 30%,” says Fred.
Simply put, “Don’t max out those credit cards,” says Gloria Garcia Cisneros, a wealth manager and certified financial planner with LourdMurray, an investment planning and financial management firm. Better yet, pay off your balances monthly.
Keep your accounts open
Because history often repeats itself, your track record is looked at as a predictor of how you might behave in the future. The bigger the picture the better, if of course you’ve been doing the right thing. “When it comes to credit history, the older the accounts, the more stability you show,” says Garcia Cisneros.
For credit cards, Fred recommends keeping credit lines without an annual fee open unless there's a reason to close them. This builds your credit history. “Realize many lenders close inactive accounts. Try to use your credit cards, even if it's just once a year to buy a pack of gum or a coffee,” he adds.
Diversify your credit
Variety is the spice of life with credit too. “Contrary to popular belief, having a mix of loan types like installment credit —such as student or auto loans and mortgages—and revolving credit, like credit cards, is good for your score. It shows lenders you can handle multiple payments at the same time,” says Jason Gaughan, Head of Consumer Credit Card Products at Bank of America.
Be cautious about adding credit
“Don't go wild applying for new cards. Recent credit checks and newly opened accounts can negatively affect you,” says Garcia Cisneros.
Furthermore, says Gaughan, “Opening multiple credit accounts in a short time can make you appear riskier to lenders and hurt your credit score significantly because it suggests a sudden need for credit, which can be a red flag.”
Think outside the box
There are other strategies for improving your credit score that maybe you haven’t heard about.
- For example, if you make multiple monthly payments above the minimum, you will see your score rise, says Chrissy Grigoropoulos, author of Ladyshark: How to Become a Millionaire in Your 30s.
- Another way to improve a credit score is to become an authorized user on someone else's account with a good payment history. Credit activity on the shared account will be reported on the primary cardholder’s name and may also be reported in the authorized user’s name. “This can help boost your own score without having to take on any debt,” says Michael Collins, founder and CEO of WinCap Financial.
- Asking for a credit limit increase can be beneficial for your long-term credit score health, as it can lower your utilization rate, or the size of your balance compared to your credit limit.
- Get credit for paying rent, cell phone, and utility bills by adding them to your credit report. Check out programs like Experian Boost.
The takeaway
Says Grigoropoulos, “Many may think cash is king, but in reality, having a good credit score is how you can go further with your financial growth.”
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