Your credit score is one of the most important measures of your financial health. It tells lenders at a glance how responsibly you use credit. The better your score, the easier you will find it to be approved for new loans or lines of credit. Following are some steps you can take to improve your credit score:
Review your credit reports
Pull a copy of your credit report from each of the three major national credit bureaus: Equifax, Experian, and TransUnion. You can do that for free once a year through the official AnnualCreditReport.com website. Then review each report to see what’s helping or hurting your score. Factors that contribute to a higher credit score include a history of on-time payments, low balances on your credit cards, a mix of different credit card and loan accounts, older credit accounts, and minimal inquiries for new credit. Late or missed payments, high credit card balances, collections, and judgments are major credit score detractors.
Get a handle on bill payments
More than 90% of top lenders use FICO credit scores, and they’re determined by five distinct factors: Payment history (35%); Credit usage (30%); Age of credit accounts (15%); Credit mix (10%); New credit inquiries (10%). Payment history has the biggest impact on your credit score. That is why it’s better to have paid off debts, such as your old student loans, remain on your record. If you paid your debts responsibly and on time, it benefits you.
Aim for 30% credit utilization or less
Credit utilization refers to the portion of your credit limit that you’re using. Credit utilization refers to the portion of your credit limit that you’re using. Another way to improve your credit utilization ratio is by asking for a credit limit increase. Raising your credit limit can help your credit utilization, as long as your balance doesn’t increase in tandem.
Limit your requests for a new credit card and ‘hard’ inquiries
There can be two types of inquiries into your credit history, often referred to as “hard” and “soft” inquiries. A typical soft inquiry might include you checking your own credit or credit card companies to determine if they want to send your pre-approved credit offers. Soft inquiries will not affect your credit score. Hard inquiries, however, can affect your credit score—adversely—for anywhere from a few months to two years. Hard inquiries can include applications for a new credit card, a mortgage, an auto loan, or some other form of new credit.
Keep Old Accounts Open and Deal With Delinquencies
The age of credit portion of your credit score looks at how long you’ve had your credit accounts. The older your average credit age, the more favorably you appear to lenders. If you have old credit accounts you’re not using, don’t close them down. Though the credit history for those accounts would remain on your credit report, closing credit cards while you have a balance on other cards would lower your available credit and increase your credit utilization ratio.