- Francesca Sacco
Tips to improve your credit score
2020 was a difficult year financially for many. If the pandemic impacted your finances, it’s a good idea to develop a new strategy for any financial moves you have planned, like purchasing a home or car, or readjusting saving and spending goals.
But before you make adjustments to your financial plans, it’s a good idea to check your credit score to see where you stand. Anything 670 or above in the FICO® scoring model is considered a good credit score, and will allow you access to more loan and credit card options. The closer your score is to the 850 maximum, the better.
Credit scores can be impacted – both for the good and the bad – in a number of ways. Here are some tips to get your credit score in shape (or help you maintain your high score).
- Set up automatic bill pay. Your payment history is the most important factor in your credit score. To make sure you never miss a payment, set up your bills on autopay.
- Pay down balances. The amount of revolving debt also plays a big role in your credit score. Your credit utilization-which refers to the amount of credit you have used compared to the amount of credit you have been extended-shouldn’t exceed more than 30%. Make it a goal to reduce any high-interest credit card debt first since that will likely cost you more money in interest compared to an auto loan. Decreasing your credit card balances also shows potential lenders that you’re responsible with credit.
- Get a credit-builder loan. If you’re building credit from scratch or recovering after a big hit to your score, a credit-builder loan from a credit union could help. You’ll make fixed payments for six to 24 months, while your money sits in a savings account (which you can access at the end of the loan term). In the meantime, the lender will report on-time payments to the credit bureaus, strengthening your score.
- Get a secured card. Another option for building credit is to get a secured credit card. It requires a cash deposit – typically between $200 and $3,000 – and becomes your credit limit. You can use the card as any other credit card, but the creditor is protected in the possibility that you don’t pay off your balance. If you use a secured card responsibility, you could upgrade to a traditional unsecured card at a later point.
- Become a joint user. Another easy way to improve your credit is to join a trusted family member’s or friend’s credit card account as a joint user. As a joint user, you’re able to use the card to make purchases (you’ll need to work out a way to repay the primary user), and the payment history shows up on your credit report.
- Dispute credit report errors. Credit report errors happen. The best way to protect against them is to regularly check your credit report. You can get a free credit report from each of the three main credit bureaus once a year at annualcreditreport.com. If you find something that shouldn’t be there, you can file a dispute with the appropriate bureau.
- Keep old accounts open. Your credit score benefits from a long credit history and a high total credit limit. Closing established accounts will shorten the average age of your accounts and lower your total limit.
- Mix it up. Having both installment accounts and revolving credit, such as loans and credit cards, can boost your perceived creditworthiness.
- Ask for high credit limits. When your credit limit goes up and your balance stays the same, it lowers your overall credit utilization, which can improve your credit. Call your card issuers and ask if you can get a higher limit without a hard credit inquiry.
- Make frequent payments. If you’re able to make small payments – micropayments – throughout the month, that can help keep your credit card balances down and improve your credit. This will also help to keep credit card utilization low.
- Have patience. There’s no quick fix to build or restore credit.