5 Tips on How to Improve Your Credit Score

Your credit score is one of your most important financial assets. It can affect a lot of your financial decisions such as purchasing a car or house, applying for a student loan or credit card, and even renting an apartment. 

A low credit score can have many impacts on your life — and not just financially. It can also affect your personal life, whether it is your feelings toward your credit score or your ability to meet your goals. 

To help you improve your credit score, we’ve pulled together a list of the five key measures that can lead to positive credit score results.

How Credit Scores Work

Learning how to improve your credit score starts with understanding what factors go into calculating the score. A credit score is calculated by a specific formula created by three credit bureaus. 

The formula itself isn’t shared, but which factors affect your score are. These factors include:

• Bill payment history, which tracks if you’re paying your bills on time. A missed payment can reflect on your credit score for two years.
• Debt utilization is the amount of debt you have. If you have a lot of debt, this is going to drag your score down.
• Credit history, which is how long you’ve had various types of credit. The longer your history is, the better.
• New credit inquiries, which is when a company looks into your credit history after you’ve applied for a loan or credit card. It’s important to manage the number of inquiries on your record because generally, more than two inquiries in a short period of time can indicate financial instability.
• Types of credit, which is when you have multiple types of credit such as a car loan, credit card and student loan. Having multiple types of credit can indicate you’re more credit-worthy than people with only one or two types.

These factors all come together to determine your credit score, which in turn can determine your interest rates and how much you can borrow for a loan, the amount of credit available on a new credit card, and even if you are approved to rent an apartment. Many apartments will look at your debt-to-income ratio or credit score to determine if you are able to pay rent if you are a tenant.

5 Ways to Improve Your Credit Score

Now that you have an understanding of what a credit score is and the factors that determine a credit score, let’s look at some key measures you can take to improve your credit score.

1. Pay Bills on Time

No matter what the bill is, strive to pay it on time because on-time bill payments are heavily weighted in a credit score calculation. If you’re struggling to make your bill due dates on time, you may need to review and adjust your budget or cut down on unnecessary expenses.

2. Monitor Your Credit Card Usage

Having a high debt utilization can negatively affect your credit score. For example, if you do need to use your credit card to keep it active or in an emergency, make sure to pay off that amount in full in the same month. 

Avoid making high-cost purchases that can make it difficult to pay your bill in full each month. There is a balance when it comes to credit cards: Don’t overuse them, but don’t avoid use altogether. A lack of credit history can be as much of a disadvantage as overuse. The key is moderation.

3. Use a Money Management App

Sometimes it’s hard to set and stick to a budget, especially during times of rising inflation and busy schedules. You may simply take the credit card out of your wallet without thinking twice about it. 

However, using a money management app and tracking your spending and bills will help you be more aware of your credit and what is being spent on unnecessary or impulse purchases. A money management app can also help you review and adjust your budget.

4. Limit Opening New Accounts

The more accounts you open, the harder it may be to manage them. Many retailers offer credit cards with appealing perks, but it can hurt your credit score in the long run between high interest rates, credit inquiries and high debt utilization.

5. Pay Off Debts

If you have debts such as credit cards or student loans, paying these off can help improve your credit score. There are a couple of methods that are popular for paying off debts. 

The “snowball method” involves paying off the smallest debt as quickly as possible, then taking the amount of money you were paying toward that debt and then rolling it into the next one until your debts are paid off. 

The “avalanche method” involves focusing on paying a loan or credit card with the highest interest rate as quickly as possible, and then moving on to the next loan or card with the highest interest rate when the first debt is paid off.

Improve Your Financial Health With Money Management Tools

Improving your financial well-being goes beyond learning how to improve your credit score. Your local credit union can provide money management tools to plan your financial future. 

Learn more and access these helpful resources by becoming a credit union member and opening a checking account today.