Your credit score is the door to so much in your financial life.
This three-digit number measures if you manage debt responsibly and is a key factor that determines whether you qualify for a loan and what interest rate you will pay.
Insurers, utilities and cell phone companies also your score to determine pricing. Landlords use scores, too, in their rental applications. So, it’s important to have a good one.
What’s a good credit score? Borrowers with FICO scores on the higher end of the 300-850 range are considered the least risky, while those with scores on the lower end are the riskiest to lenders.
- Exceptional: 800-850
- Very good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
You can check your score for free at sites like CreditKarma and CreditSesame. Many credit card companies also provide a free credit score every month for cardholders.
If your score is lower than you’d hoped, here are eight ways to try to improve it.
The first step is to make sure that your credit score is based on accurate information in your credit report. Everyone is entitled to a free credit report from each of the national credit bureaus – Experian, Equifax and TransUnion – once a year. To pulls yours, go to annualcreditreport.com.
Once you have it in hand, make sure all the accounts listed on the report belong to you and that they accurately reflect your payment history. Report any errors to the credit bureau for further investigation.
Set up automatic payments
If you often pay your bills late, set up automatic payments from your bank account every month. Your payment history accounts for the biggest chunk of your FICO credit score at 35%, so improving the timeliness of your bill payments will eventually boost your score.
Reduce balances smartly
The amounts you owe on credit cards make up 30% of your FICO score. FICO rewards you if you can resist the temptation of running up your spending close to the limit. That’s why you’ll get a higher score if you use 25% or less of your available credit on each of your credit cards and in aggregate.
So, start paying down those balances that are closer to maxing out first, before turning to the others to help your score quickly.
Don’t open new accounts
Every time you apply for new credit – such as store cards or credit cards – the lender will pull your credit report as part of the application process. This is called a hard inquiry and multiple pulls in a short time ding your credit score.
“Apply for credit only when you need it,” says Ulzheimer.
Open new account
Ignore the previous recommendation if you have a bad credit score or no credit score at all. In these scenarios, you need some kind of debt to help you repair or build your credit.
Apply for a secured credit card, which requires a small upfront deposit typically between $500 and $2,000 to secure the credit line. Then use it for small, recurring bills every month and pay it off in full each month. The positive payment behavior will eventually raise your score.
‘Boost’ your score
If you pay your utility and cell phone bills on time, use that to help your credit score. A new tool from Experian – called Experian Boost – allows you to instantly add that payment history to your credit report for free by supplying your bank login and password to the credit bureau.
Experian estimated that about two-thirds of people will see an improvement in their scores after using the tool.
“If you get 20 to 30 points out of it, that’s a big deal,” says Ulzheimer.
Unfortunately, this only boosts a credit score based on your Experian credit report, so if a lender uses TransUnion or Equifax, you’re out of luck.
Credit score chess
Another quick way to raise your score is by using two strategies that Ulzheimer calls “chess moves for credit scores.”
Swap out debt: Pay off credit card balances with a new personal loan or home equity loan. While the total debt you owe is still the same, you won’t get dinged by FICO for having high credit card balances. Instead, it will look like you use none of your available credit. Another win? Loan rates are often lower than interest rates on credit cards, so you save money on interest.
Pay strategically: Here’s another way to look like you don’t use much or any of your available credit card limits. Try to pay off your balance, or as much as you can, before the statement closing date. The balance on that date is sent to you and the credit bureaus, and is used when FICO calculates your credit score. It doesn’t mean that you have to change your spending behavior, it just means you’re attacking outstanding debt earlier in the billing cycle.
“If you can eliminate or reduce that balance even while using the card the same as you always do, then your score can go up,” Ulzheimer says. “I call it an ethical credit hack.”