How to improve a credit score: tips for a better credit rating

What is a credit score?

Simply put, a credit score is a three-digit number. This number helps lenders, like banks, decide how likely it is that you will be able to pay them back on time. Credit scores usually range from 300 to 850, depending on who produces them.

In theory, your credit score reflects the status of your finances and your financial history. In particular, it reflects your credit history. If you have had a good history with lenders, your score should be high. If you have a poor history with lenders, your score may be low.

Yet, credit scores can be wrong through no fault of your own. They can sometimes lead to misconceptions about your financial potential.

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How is my credit score calculated?

Lenders calculate your credit score based on information in one or all of your three credit reports. These credit reports are created separately by three bureaus: TransUnion, Equifax, and Experian. In the same manner, the three bureaus calculate their own credit scores for you as well.

Credit reports contain key items like:

• History
• Amount of debt
• The number of credit cards opened and closed
• The age of credit card accounts
• Types of credit card accounts
• The frequency with which you apply for new credit

Lenders use mathematical equations that take this information from your credit reports and create scores from it. Each lender has its own scoring model, but they are often similar. You might have multiple, slightly different credit scores.

Why is my credit score important?

Your credit score can have a powerful influence on your finances.

High credit scores tell lenders that you typically pay your bills on time. It helps you qualify for loans, credit cards, and mortgages. They can also help you secure more favorable credit terms, like lower interest rates. These benefits can propel you toward financial success.

Low credit scores can hurt you in multiple ways. You may not be able to qualify for lending opportunities. You might have to pay higher rates if you even do qualify.

Your credit score can also affect your life outside of your finances. Landlords often check credit scores when deciding who can rent their apartments. Insurers refer to credit scores when setting premiums for auto coverage.

In other words, credit scores can impact nearly every part of your life. It can benefit you to make yours as good as possible in the long (and short) run.

How can I improve my credit score quickly?

Achieving top-notch credit scores is a marathon, not a sprint. You can start to see your credit score start to rise after making a few changes.

To improve your credit score, you can:

• Review your credit reports for errors. Each of the three credit bureaus will give you a free copy of your credit report once a year. Make sure your three credit reports are accurate.
• Identify areas of improvement. As you look through your credit reports, you will see what you need to improve. You might need to focus on payment history, debt, account age, or account mix, among other categories.
• Ask someone to add you as an authorized user. One of the fastest (and easiest) ways to improve your credit score is to ask someone with good credit to add you to their account. You don’t even need to use the account or credit—their positive credit will be reflected in your account anyway.
• Clear outstanding collection accounts. If you can afford it, pay off your debt to creditors. When you talk to them, ensure they agree to remove the negative note on your credit report. Be sure to get the agreement in writing.
• Avoid closing credit cards. Having credit card accounts open for a long amount of time will improve your credit. If you don’t want to use a specific credit card, pay it off and keep it open but empty.
• Open a credit card. If you’re new to credit cards and loans, you should open a credit card. Having a credit card will help you build your credit. Remember to pay it off regularly or use your lender’s auto-pay feature.
• Dispute hard inquiries. Some lenders will conduct a credit inquiry to ensure you have good credit. Yet, a credit inquiry is a hard inquiry. Hard inquiries can stay on your credit report for a year. While one hard inquiry is okay, several in a row will hurt your score. You may ask to have a hard inquiry removed if you didn’t approve it.
• Don’t reach your credit limit. Use around 30% of your credit limit, if possible. For example, if you have $5,000 in credit, try to keep less than $1,500 charged to your card.
• Increase your credit limits. TTypically, you should charge no more than 30% of your credit card limit. If this becomes a struggle for you, see if you can increase your credit limit. You can typically do this by asking your credit provider online, on the phone or in person.
• Start good habits. To help your credit score improve in the long run, keep up good financial habits. Aim to pay your bills on time, charge under 30% of your credit limit, and check your credit score regularly.

Consider tracking your progress in Excel. This tool will help you stay organized, allowing you to carefully monitor what goals you’d like to meet and when. Regular tracking will keep you on the path to achieving your financial goals.