The average credit score in the U.S. is 714, but that doesn’t mean everyone has good credit. Most lenders use FICO scores for credit ratings. FICO scores range from 850 (a perfect score) to 300. A poor score is one that falls below the 580 range. If you happen to have a score on the lower end, it can hold you back from the things you want, whether that’s getting a new car, renting a nice apartment or buying your dream home. It can also mean you get charged higher interest rates on loans.
While improving your credit won’t happen overnight, the sooner you take steps to boost your credit score, the sooner you’ll begin reaping the benefits, such as qualifying for a lower rate on a mortgage or car loan. Here are seven steps you can take to begin improving your credit score.
1. Check Your Credit Score And Credit Report
Your credit report contains information about how you’ve used credit in the past 10 years. You have one credit report at each of the three main credit bureaus: Equifax, Experian and TransUnion. Most creditors report to all three, but not all, so it’s worth checking the information on all three bureaus’ reports. This is helpful because you’ll be able to see all of the accounts in your name, your credit history and your oldest line of credit. A free report is available at minimum once every 12 months at AnnualCreditReport.com,
Next, check your credit score. Next, check your credit score. The credit reports are what credit scoring companies use to generate your score. Some credit card providers will offer free access to your credit score. Checking your own score only requires a soft credit inquiry, which doesn’t damage your score. It’s a good idea to check your credit score once per month.
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2. Fix or Dispute Any Errors
Unfortunately, credit bureaus sometimes make errors. According to one study by the Federal Trade Commission, one quarter of people had errors on their credit report and 5% of people had errors that could have made getting a loan more costly for them.
If you find mistakes on your credit report, such as accounts that you don’t own or an incorrect payment history, be sure to report them to the credit bureau immediately. Negative information can impact your credit score, which is why it’s important to monitor this activity.
According to the Consumer Protection Finance Bureau, common mistakes on credit reports include:
- Incorrect identity information, such as wrong name, phone number or address
- Accounts that belong to another person with the same or similar name to you
- Fraudulent accounts resulting from identity theft
- Closed accounts, such as credit cards or car loans, that are reported as open
- Incorrect late or delinquent status on accounts
- Repeat listings of the same debt
- Incorrect current balance or incorrect credit limit
So, while reading your credit report and keeping up with your credit score are good first steps, it’s also crucial to look for errors. If you spot any, it’s a relatively simple process to dispute those errors and have them removed.
3. Always Pay Your Bills On Time
Your payment history makes up 35% of your credit score. So if you want to fix your credit, you should focus on ironing out your monthly payments. While it may feel like a challenge to pay all of your bills on time, there’s a simple hack to getting this right: autopay.
For bills that don’t permit autopay—like one-off medical bills—pay them as soon as you get them. If you can’t afford your current balance or minimum monthly payment, contact the office and devise a payment plan. You can avoid overdrawing your account by setting up a budget or scheduling your autopay to go out at the same time you get paid.
4. Keep Your Credit Utilization Ratio Below 30%
Your credit utilization ratio is measured by comparing your credit card balances to your overall credit card limit. Lenders use this ratio to evaluate how well you manage your finances. A ratio of less than 30% and greater than 0% is generally considered good.
For example, let’s say you have two cards with individual credit limits of $2,000 and $500 of unpaid balances on one card. Your credit utilization ratio would be 12.5%. In this case, total your debt owed ($500) and then divide that by your total credit limit ($4,000).
5. Pay Down Other Debts
If you have outstanding debts, paying them off can help improve your payment history and reduce your credit utilization ratio.
When planning to repay your credit card debt, consider the debt avalanche or snowball method. The debt avalanche method focuses on repaying your high-interest cards first while the snowball method focuses on repaying your smallest balances first. Evaluate both to determine which method is best for your situation.
If you plan to repay loan debt, it’s important to note that you might see a temporary dip in your credit score. But rest assured, according to Experian, this will improve your credit score over the long term.
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6. Keep Old Credit Cards Open
You might be tempted to close old credit card accounts when you’ve paid them off. However, don’t be so quick to do that. By keeping them open, you can establish a long credit history, which makes up 15% of your credit score.
There are a few caveats here, though. Your issuer may close your card after a certain period of inactivity. If the card charges an annual fee, it might be worth closing.
Related: Credit Cards For Bad Credit
7. Don’t Take Out Credit Unless You Need It
Each time you apply for credit, your creditor will run a hard credit check. This can drop your score by up to five points. It’ll also lower your average account age, which can decrease your credit score. So, as a rule of thumb, try to avoid applying for credit unless you really need it.
Can You Pay a Company to Fix Your Credit?
Credit repair companies work mostly by deleting negative information from your credit report, typically errors. But that’s only one tiny part of fixing your credit score. And you might find it faster to dispute errors yourself.
In addition, credit repair companies can be expensive—often around $50-$100 per month, according to Experian—so it’s worth trying to do it on your own. And if you really need credit help, you can always seek affordable assistance from a nonprofit credit counselor through the National Foundation for Credit Counseling.
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How Long Does It Take to Fix Your Credit?
After you take actions to improve your credit, like paying down your credit card balance, it could take longer than expected to see the results. Sometimes it can take at least a few weeks for creditors to report your payment information and companies to update your score because of it. In general, fixing your credit score is a long-term process.
Related: Credit Card Payoff Calculator
Next Steps: Check Your Credit Score Regularly
Once you start taking the steps to fix your credit, it’s a good idea to keep regular tabs on your score by checking it once a month. That way, you’ll be able to catch any errors and also watch how your actions are playing a role in improving your score.
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Experian can help raise your FICO® Score based on bill payment like your phone, utilities and popular streaming services. Results may vary. See site for more details.
