Trending Up: 18 Tips to Improve Your Credit Score and Get Better a Better Loan

Television and radio ads make it seem like you should be very concerned about your credit score. But is a three-digit number really that big of a deal? Yes, it really is! That means knowing how to improve a credit score is also a really big deal.

Richard Helali of HomeLight Home Loans knows firsthand the importance of a good credit score. He says, “Every ten-point difference in your credit score matters in terms of what mortgage interest rate you qualify for.”

And because interest rates impact your purchasing power, raising your credit score makes a big difference. We’ll unpack 18 intentional ways to move toward credit score success.

What’s your credit score, and why might you want to improve it?

Your credit score is a number that reflects how good you are at repaying borrowed money. It’s an important indicator for lenders and creditors because they’re trying to determine the likelihood of you paying them back!

The higher your credit score is, the better deal you can get on interest rates for loans on large purchases … such as a house.

Michael Slate, a top-producing real estate agent in Palm Springs, California, advises his clients to actively pinpoint the areas that will produce the biggest improvements for their credit score, especially when looking to buy a home.

“You want to talk with your lending professional to see what’s really impacting your score,” he says, noting that the problem may not be what you think it is.

Not all credit scores are created equal, but all usually look at the same elements. Take the FICO score, for example, which can be broken down into five components.

• 35% payment history: Your record of timely bill payments. Developing a consistent on-time payment history is key to developing good credit.
• 30% credit usage: The amount of credit you have available compared to how much you’ve used. If you are maxing out your lines of credit, it could mean you are overextended. Using 30% or less of your available credit looks good on your credit report.
• 15% age of accounts: The average age of all your accounts as well as how long it’s been since you used each account. Generally, a longer credit history works in your favor
• 10% credit mix: What types of loans and accounts you have. A mix of long-term loans, credit cards, retail accounts, and bank accounts is nice, but you don’t have to have all of these to have a good credit mix level.
• 10% new inquiries: Opening several new lines of credit at once will lower your credit score.

How to improve your credit score

It takes time and effort to actively boost your credit score, but a combination of knowledge and action will help get you started on that upward trend.

1. Know your score

You can’t improve upon an unknown! Raising your credit score starts with knowing what your credit score is, along with what’s on your credit report.

You can request a free copy of your credit report once a year from the major bureaus: Equifax, Experian, and TransUnion.

Again, don’t be concerned if the score numbers on your credit reports don’t match each other exactly. Each credit reporting company works from a different algorithm, and the elements of your credit are weighed in different ratios.

The point is to get a baseline marker of your score. After that, every positive step you make will impact all scores — just to varying degrees.

2. Dispute any errors

With fresh credit reports in hand, it’s time to dig into the bits and pieces that are affecting your score.

Your first step should be examining each line of data for accuracy. Do your accounts match? What about your balances (in round numbers; actual numbers will have a little lag)? If not, you’ll need to get those errors corrected.

According to the Fair Credit Reporting Act, both the credit reporting company and the reporting entity (the person or company that gave the credit reporting company your information) are responsible for correcting any errors or misinformation in your report. But it’s up to you to get the ball rolling.

The Federal Trade Commission recommends the following steps to dispute credit report errors.

• Notify the reporting company. Clearly state the error in writing, and attach any documentation that supports your claim (receipts, letters, statements). Ask for the error to be changed or struck from your report.
  The reporting company will pursue your claim with the reporting entity within 30 days and provide you with a rectified report if they determine that your dispute is accurate.
• Notify the reporting entity. Yes, the reporting company will also be contacting the reporting entity, but you can speed up the process by being proactive.
  Use the same procedure here: Tell them in writing with copies of necessary supporting material. If they acknowledge the error, they must notify all three reporting companies to fix your report across the board.

3. Deal with any delinquencies

On-time payments are a big deal when it comes to your credit score. Remember, payment history accounts for 35% of a FICO score, so any delinquent balances are making a big negative impact overall.

Helali says, “The biggest thing is to make sure all your payments are on time. It doesn’t matter if you have a late payment on a credit card that had a $1,000 balance or if you have a late payment on a credit card that had a $5 balance. It’s a late payment, and that’s going to impact your score.”

Missing one month’s regular payment is considered delinquent, though most creditors won’t report the issue until the two- or three-month mark. If you haven’t always been the best at paying on time, now is the time to make it right!

4. Settle any collections

Collections or charge-offs kill a credit score faster than snow boots on a bug.

Settle up those collections! They’ll remain on your record for up to seven years, but over time, they’ll make less of an impact on your credit history.

5. Put your bills on autopay, or set up a calendar reminder

Life happens, and a bill or payment gets shuffled to the side by accident. We get it. But the thing is, your credit score doesn’t get it. It’s an algorithm that doesn’t follow the news or your Facebook feed, and it unfortunately is not going to be at all sympathetic about any late payments.

Logging a consistent record of on-time payments is the most surefire way to positively impact your score. Again, payment history is weighted heavily in the credit score ratio, so developing that pattern of paying your bills on time makes a big difference.

Use technology to your advantage. For the regular bills that you can pay online, set up an autopay feature.

Don’t get overly worried about overdrafts on your main account! Most autopay setups include the option for email notifications. Before you get charged, you’ll get an email so you can check your account balance, if necessary.

You can also set up calendar reminders on your phone, computer, or home assistant. Put each bill or payment due date into your calendar, and turn on the reminder function. Some phones will also allow you to simply voice-command your payment reminder.

6. Pay down your debt

All outstanding debts will show up on your credit report, and a high debt-to-income ratio will make lenders less likely to give you a mortgage loan, or any other type of credit, for that matter.

Focus on your highest-interest debt first, but always make timely payments on all accounts. For example, it’s not in your best interest credit-wise to entirely pay off any single debt (such as a car or student loan) at the expense of late payments on other debts.

Slate says, “If you think paying off the dirt bikes and the snowmobile is going to bring your credit score up, it actually may not.” Instead, keeping that good credit mix and credit history can help stabilize your credit score.

Helali mentions one disclaimer to this tip, though.

“The only time that I would recommend somebody go ahead and pay something off would be if they’re trying to qualify for a home loan,” he says.

“As a result of having too much on their credit, they may not qualify for what they’re looking for. Sometimes if you pay off an auto loan or other non-revolving credit, the payment goes away, and you’re likely to qualify for more.”

7. Keep your credit balances low

Just because you’ve got a $5,000 limit on one of your credit cards doesn’t mean you should use it!

Aim for 30% or less in credit utilization. That means keeping your balance at or below $1,500 for a card with a $5,000 limit (assuming you have no other lines of credit).

In fact, Helali says that those who are looking to actively build their credit should really try to stay even below that rule of thumb. He recommends a 20% credit usage.

8. Get credit for utility/cell phone/rent payments

Even if you’re awesome at making your rent and utility payments, you might not get credit for that responsible behavior in your credit report. To ensure that those payments get counted toward your credit score, you have a couple of options.

First of all, you could pay for any regular bills with a credit card. As long as you continuously pay off your credit card balance (and don’t max out your credit limit!), this can help build your payment consistency and boost your credit score. Hint: Using this strategy with a rewards card can earn you extra bonus points or miles for money you’re already spending. But be sure to pay it off!

As a second option, you can sign up for services that report your utilities and rent payments to be counted in your credit score. Experian Boost, UltraFICO, Rental Kharma, and Rent Track are a few options that may be especially helpful for those trying to build up thin credit files.

9. Only open new accounts strategically

If you don’t have enough available credit — or any credit cards at all — then it might be smart to open an account in order to boost the credit usage section of your credit score. Look for a card with no annual fees and bonus reward points for purchases.

But don’t apply for too many all at once! Those credit checks could negatively impact the new inquiries element of your credit score.

And don’t open a new account if you can’t commit to paying it off each month by the due date. Payment history outweighs credit usage, after all.

10. Don’t close any unused accounts

It might seem wise to “clean up” your credit report by canceling credit cards you don’t use anymore.

But actually, keeping them open adds more longevity to your history and keeps your available credit higher.

11. Request a higher credit limit on your best account

Ask for a higher credit limit on your preferred credit card. If you’ve been consistently paying your bills, the credit card company will usually grant your request, often without even asking for proof of income.

But here’s the key: Don’t use that additional credit! Remember tip 6: Requesting higher credit is simply a strategy to keep your current spending below that 20% to 30% credit usage mark.

12. Become an authorized user on someone else’s account

If someone close to you has good credit, you could ask them for the right to become an authorized user on their account.

As long as they continue to pay their bill, your credit will get a boost by association. And you’ll also raise your available credit, thus lowering your credit usage.

13. Get a secured credit card

A secured credit card works much like a security deposit on a rental house or car. A cardholder puts down a deposit as collateral to open the account. Then the bank or credit card company holds that money as a guarantee in case you fall behind on payments.

For those with poor credit scores, secured credit cards can be a great way to start rebuilding credit. As long as you make your payments, your credit history improves over time.

14. Aim for a mix of different types of credit accounts

The more types of accounts you have, the better it looks for your credit mix.

If you’ve got several credit cards, consider opening a money market account. If you’re buying a car, consider financing part of it, even if you’ve got the cash in savings.

15. Try to pay off your balances in full every month …

Keeping a balance on your credit card means you’re constantly accruing interest, which is additional debt.

Spend only what you know you can pay off in full at the end of each billing cycle. But remember…

16. … Or make multiple payments in a single month

Not everything is that simple. Sometimes there’s an unexpected health expense or a flat tire that you didn’t budget for, and you end up dipping into your card’s line of credit.

In that case, be sure to make at least the minimum payment on the due date so that you don’t have a late payment on your record.

Then, at the first opportunity, make an additional payment (or several small payments!) to bring down your balance as quickly as possible.

Don’t wait until the next billing cycle! People often get behind on payments simply because of the compounding burden of interest.

17. Limit your hard inquiries

Soft inquiries, such as you or your bank looking at your credit report, will not impact your credit score. Hard inquiries, on the other hand, stay on your record for two years.

Hard inquiries include credit checks that are tied to credit card or loan approvals. Be careful that you’re not applying for a credit card while also asking for a mortgage loan!

18. Stay alert for identity theft

Consider signing up for a credit monitoring service, which will keep watch over your credit scores and alert you for any indications of identity theft.

Some of these services are free — such as those that might be offered by your financial institution — but do your research regarding the scope and thoroughness of the monitoring service before signing up.

Helali wraps up credit improvement nicely, saying, “It’s mainly about keeping balances low and making sure things are paid on time. Really, just don’t spend if you don’t need to.”

Slate adds, “And if you’re thinking about purchasing real estate, don’t go buy a brand-new car! For lenders, it’s all about cash flow.”

A higher credit score is within your reach. With these intentional money management changes over a consistent period of time, you’ll see active improvement. And that high score could land you in the home of your dreams.

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