There are a lot of tips and tricks on how to improve your credit score – and we’ll get to those in a moment – but nothing will raise your credit score faster or more effectively than paying bills on time and using your credit cards judiciously.
“If you are trying to give people advice for improving their score, pointing them toward those two components – things that are relatively easy to change – is a very good start,” said Tatiana Homonoff, an assistant professor of Economics and Public Policy at New York University, who did a two-year study on credit scores and published a paper on it in April of 2018.
Homonoff, who is affiliated with the Robert F. Wagner Graduate School of Public Service at NYU, added: “There are some parts of the credit score algorithm that are very hard to effect, but paying bills on time and being aware of credit utilization are things people can do with some ease, even if they’re in a tough financial position.”
Americans obviously are paying more attention. In July of 2020, the average FICO score hit a record high of 711, an 11-point increase from 2018. That has put millions of consumers in a better position to get low-interest, affordable credit opportunities.
Below, we’ll go over how credit scores work and offer some tips on how to raise yours.
What Is a Credit Score?
A credit score is a numeric summary of your credit history, a commonly used method for lenders to predict the likelihood that you will repay any loans they make to you.
Credit scores range from 300 (poor) to 850 (excellent). Higher scores illustrate consistently good credit histories, including on-time payments, low credit use and long credit history. Lower scores indicate borrowers may be risky investments because of late payments or overextended use of credit.
There are no exact cutoffs for good scores or bad scores, but there are guidelines for each. Most lenders view scores above 720 as ideal and scores below 630 as problematic.
Consumers are becoming more aware of how raising their credit score improves their financial outlook and Homonoff’s study has evidence of it. She found consumer behavior improved dramatically when people were aware of their credit score.
“Many people thought they had a great score, but then found out they overestimated it,” she said. “They realized they had to start changing credit behaviors, so they stopped making late payments, they paid off cards with a balance and their scores improved.”
The FICO credit score is used by 90% of the businesses in the U.S. to determine how much credit to offer a consumer and what interest rate to charge them for that credit.
FICO uses five major components in the equation that produces your credit score. Those five include:
- Payment history (35% of score): Do you pay on time? Do you pay the full balance, the minimum or somewhere in between?
- Amounts owed (30%): How much of the credit you’re allowed, do you use? If you exceed the limit, you are seen as high risk and penalized. If you use less than 30% of credit allowed, you’re considered a safe borrower and get a positive rating.
- Length of credit history (15%): The longer you have an account, the better the scorekeepers like it.
- Credit mix (10%): FICO likes to see a mix between credit cards, mortgages and auto loans … as long as you can afford them! Don’t take out another loan in hopes it will improve your score. This category doesn’t count enough in the overall equation.
- New credit (10%): It’s OK to occasionally open a new account, but if you are applying for several accounts in a short period, you are a risk and your score will reflect that.
As you go through life, your credit score will fluctuate. How much it fluctuates depends on how reliable you are at repaying debt on time, especially credit cards and installment loans. When you use credit more often, whether it’s by taking on more credit cards, getting a mortgage, taking out a student loan or auto loan, your credit score changes to reflect how you deal with the responsibility of more debt.
13 Tips to Increase Your Credit Score
If you are like many consumers and don’t know your credit score, there are several free places you can find it. The Discover Card is one of several credit card sources that offer free credit scores. Discover provides your FICO score, the one used by 90% of businesses that do lending. Most other credit cards like Capital One and Chase give you a Vantage Score, which is similar, but not identical. Same goes for online sites like Credit Karma, Credit Sesame and Quizzle.
The Vantage Score comes from the same place that FICO gets its information – the three major credit reporting bureaus, Experian, TransUnion and Equifax – but it weighs elements differently and there could be a slight difference in the two scores.
Once you get your score, as Homonoff suggested, you might be surprised if it’s not as high as you expected. These are ways to improve the score.
1. Review Your Credit Report
You are entitled to one free credit report a year from each of the three reporting agencies and requesting one has no impact on your credit score. Review each report closely. Dispute any errors that you find. This is the closest you can get to a quick credit fix.
A government study found that 26% of consumers have at least one potentially material error. Some are simple mistakes like a misspelled name, address, or accounts belonging to someone else with the same name. Other errors are costlier, such as accounts that incorrectly are reported late or delinquent; debts listed twice; closed accounts that are reported as still open; accounts with an incorrect balance or credit limit.
Notifying the credit reporting agency of wrong or outdated information will improve your score as soon as the false information is removed. About 20% of consumers who identified mistakes saw their credit score increase.
2. Set Up Payment Reminders
Write down payment deadlines for each bill in a planner or calendar and set up reminders online. Consistently paying your bills on time can raise your score within a few months.
3. Pay More Than Once in a Billing Cycle
If you can afford it, pay down your bills every two weeks rather than once a month. This lowers your credit utilization and improves your score.
4. Contact Your Creditors
Do this immediately to set up a payment plan if you miss payment deadlines and can’t afford your monthly bills. Quickly addressing your problem can ease the negative effect of late payments and high outstanding balances.
5. Apply for New Credit Sparingly
Although it increases your total credit limit, it hurts your score if you apply for or open several new accounts in a short time.
6. Don’t Close Unused Credit Card Accounts
The age of your credit history matters and a longer history is better. If you must close credit accounts, close newer ones.
7. Be Careful Paying Off Old Debts
If a debt is “charged off” by the creditor, it means they do not expect further payments. If you make a payment on a charged off account, it reactivates the debt and lowers your credit score. This often happens when collection agencies are involved.
8. Pay Down “Maxed Out” Cards First
If you use multiple credit cards and the amount owed on one or more is close to the credit limit, pay that one off first to bring down your credit utilization rate.
9. Diversify Your Accounts
Your credit mix — mortgage, auto loans, student loans and credit cards — counts for 10% of your credit score. Adding another element to the current mix helps your score, as long as you make on-time payments.
10. Quick Loan Shopping
If you have bad credit and can’t find any other way to improve your score, you could consider taking a “quick loan.” These are typically loans for small amounts — $250 to $1,000 — that get repayment history reported to credit agencies, and can become a positive on your credit report. This is a last resort.
11. See If You Qualify for a 0% Interest Card
Several companies offer cards with 0% interest on balances, but there are caveats to this. There can be a fee for transferring the balance and the 0%offer is only good for an introductory period, typically 12-18 months. It usually takes a very good credit score to qualify for one of these.
12. Consider a Debt Consolidation Plan
There could be a temporary drop in your credit score if you enroll in a debt consolidation program, but as long as you make on-time payments, your score quickly improves and you are eliminating the debt that got you in trouble to start with.
13. Pay Attention to Credit Utilization
Your credit utilization rate is the amount of revolving credit you’re using divided by the amount of revolving credit you have available. It makes up 30% of your credit score and is often the most overlooked method of improving your score. For most people, revolving credit just means credit cards, but it includes personal and home equity lines of credit as well. A good credit utilization rate never exceeds 30%. So, if you have a credit limit of $5,000, you should never use more than $1,500.
How Long Does It Take to Rebuild Credit?
Typically, it takes at least 3-6 months of good credit behavior to see a noticeable change in your credit score. It is difficult to make a change any faster, unless the negative information on your credit report was a minor blip, like being late with bill payments one month.
While it is impossible to put a specific time frame on credit repair, it is safe to say the less negative information you have on your report – late payments, maxed out credit cards, constant credit applications, bankruptcy, etc. – the easier it is to repair your credit score.
It takes more time to repair a bad credit score than it does to build a good one. Mistakes penalize your credit score and can prevent you from being approved for a loan. Though there are lenders that offer loans with bad credit, they end up costing hundreds or thousands of dollars in higher interest rates when borrowing. A poor credit score also can be a roadblock to renting an apartment, setting up utilities, and maybe even getting a job!
You are not going to lose nearly as many points if you are late with one payment as you will if you are delinquent for several months to the point where your account has been turned over to a collection agency. The severity of the second situation is far greater than the first and your score will reflect that.
Here are some time frames for negative information that detracts from your credit score.
- A delinquent account remains on your credit report for seven years.
- Car repossession stays on your report for seven years.
- Chapter 7 bankruptcy is on your report for 10 years. Chapter 13 remains for seven years.
- Credit application inquiries remain on your report for two years.
- Public record items such as property liens are on your report seven years.
Remember that the damage to your credit score diminishes over time. So, for example, a Chapter 13 bankruptcy in Year Six has negligible impact when compared to its effect in Year One.
How to Fix Your Credit Score Fast
Review Your Credit Report
Begin by investigating your credit report for negative information and have it removed. Yes, such things are entirely possible.
- Request your full, free credit report. You are owed one per year from each of the big three credit-reporting agencies: Experian, TransUnion, Equifax. One in five credit reports contain errors and/or omissions that can significantly drop your score. Vigorously dispute every discrepancy; provide copies of documents that support your claims.
- For accounts in collections, explore “pay to delete,” a method of removing negative information by negotiating a settlement with the agency holding your bad debt. Get the agreement in writing before you send money.
- Send “goodwill” letters to creditors with whom you’re having difficulties. Typically, goodwill letters are short, simple, pleasant, and direct requests to lenders asking them to remove negative entries. Creditors are not obligated to oblige, but you may strike pay dirt, especially if you’ve had only a few blemishes with the company in an otherwise punctual history.
Sign up for Experian Boost
If your low score is primarily the result of being new to the credit-seeking game and you are timely with your payments for utilities and your cell phone, ask the lender to pull a report from Experian, using its “Experian Boost” plan. This hybrid model draws on what the industry calls “alternative credit data” — non-traditional payments that provide lenders useful insight into an applicant’s creditworthiness.
The way forward gets a little steeper from here, so it’s a good idea to know what you’re up against.
Game the FICO System
Of the five categories influencing your credit score, there’s really only one you can influence significantly short-term: your credit utilization ratio.
Pro tip: Make sure payments arrive before the statement closing date. That way, lower balances get reported to the FICO and the big three.
Most other factors being equal, consumers with scores in the upper 600s — the bottom of the “good” range — have credit utilization ratios between 40-50%. To get into the 700s, your utilization must sink below 30%. If you’re in a hurry to help your score, use under 15%. The less you use, the better.
Fixing this is a cinch … if you have a fat savings account or maybe a wealthy (and generous) uncle. Otherwise, you need to find extra money in your budget (or extra income in your month), combined with spending discipline, to whittle down those balances.
Another way to attack high balances is with a debt-consolidation loan — if you can swing it. Present your plan to a bank or credit union, or go online to any of the assorted peer-to-peer lenders and you may be able to zero out your credit-card balances at the same time you secure a lower interest rate than you were paying Visa.
We’ve read here and there another way to lower your credit utilization ratio is to seek a boost in your balance limits from your current lenders. The mathematics of this gambit are undeniable, but the idea of seeking higher balances when we’re having trouble managing the balances we have makes our stomaches ache.
Become an Authorized User
If you have a mystifyingly benevolent parent with impeccable credit, ask to be added to his/her account as an authorized user. This will not only help your credit utilization (ideally the added account doesn’t have a high balance) but it should also lengthen your credit history. Remember, this card is strictly for a credit boost, so do not under any circumstances, use the card when it arrives in the mail.
Establishing a Credit Score
If you don’t have any credit history, get started! A positive credit history helps out nearly every aspect of your financial future, whether it’s purchasing a car, renting or buying a home, or even applying for a job.
The easiest way to start is to apply for a line of credit. Credit cards for gas stations or department stores are generally easy to obtain and are good ways to build solid credit. Use them responsibly, being careful not to overcharge. The key is to pay your bill on time each month.
If you can’t get approved for a traditional credit card, sign up for a secured credit card. These cards require a deposit, often equal to the credit limit you will be extended with the card. For example, a $500 deposit will get you a secured credit card with a $500 spending limit.
These cards act the same as unsecured cards in that you receive a monthly bill and payment is expected each month. Be sure that the spending on the secured card is reported to the credit reporting bureaus.
In most cases, as long as you pay each month, your deposit will be refunded when you are finished with the card. Your deposit can’t be used to make the monthly payments.
Becoming an authorized user is another way to establish a credit score.
Being an authorized credit card user is the best position possible in the credit world: you get all the benefits and none of the responsibility. You spend, someone else pays, and everybody’s credit improves.
This obviously-lopsided arrangement usually happens with a spouse, parent, sibling or a close friend. It takes nothing more than a phone call to the card issuer by the cardholder permitting one to use the card without paying the bill.
That is the sole responsibility of the cardholder.
In the meantime, you not only acquire the purchasing power of a credit card, but also have the cardholder’s credit history added to yours.
That provides an opportunity to add three positives right away to your credit report: an increase in the number of years using credit, an increase in the average age of credit cards you use, and an increase in the credit utilization available on your cards.
The combination of those three elements alone could raise your credit score anywhere from 50-100 points.
On the other hand, if the cardholder is late with payments, maxes out the card every month or does anything else negative, it will hurt the credit scores of both the cardholder and authorized card user.
And any negative activity you create can impact the cardholder’s credit score. If you max out the card and the cardholder is late with payments or can’t make them, it is a negative on their account — and at some point, on yours too.
If you have a job, another way to start a credit history is to take out a loan, perhaps to buy a used car. Making regular payments will help positively establish your credit history.