A good credit score can make it easier to qualify for loans and credit cards and may help borrowers receive more favorable terms. Your credit history can also become important when you are preparing to buy a home, finance a vehicle or apply for other forms of credit.
The good news is that credit scores are not permanent. Responsible financial habits can help improve your credit profile over time.
However, there is no overnight solution. Improving credit usually requires consistent payments, responsible use of available credit and time.
What Is a Credit Score?
A credit score is a number calculated from information in your credit report.
Different scoring models exist, and the factors used can vary depending on the model.
FICO says its scores generally consider payment history, amounts owed, length of credit history, new credit and credit mix.
This means there is no single action that guarantees an immediate increase in your score.
Several aspects of your credit history work together.
1. Pay Your Bills on Time
Payment history is one of the most important factors considered by major credit-scoring models.
A late payment can remain on your credit history and potentially affect your score.
One of the simplest ways to avoid missed payments is to set up automatic payments for at least the minimum amount due.
You can then make additional payments manually when appropriate.
Automatic payments do not eliminate the need to monitor your accounts, but they can reduce the chance of forgetting a due date.
2. Keep Credit Card Balances Under Control
Credit utilization refers to how much of your available revolving credit you are using.
For example, if your credit card limit is $10,000 and your balance is $3,000, your utilization for that card would be 30%.
Credit-scoring systems can consider both individual card utilization and overall utilization.
FICO notes that the amount of debt relative to available credit can affect scores.
Keeping balances lower can therefore be helpful, although there is no single utilization percentage that guarantees a particular score.
3. Don’t Max Out Your Credit Cards
Using nearly all of your available credit can make your credit profile appear more heavily utilized.
Even if you make your payments on time, consistently carrying very high balances can affect your credit score.
If possible, avoid using credit cards as a way to spend significantly more than you can afford to repay.
A credit card can be a useful financial tool when managed responsibly, but it should not be treated as extra income.
4. Check Your Credit Reports
Reviewing your credit reports can help you identify inaccurate or unfamiliar information.
Consumers can obtain free credit reports from AnnualCreditReport.com, the federally authorized source for free credit reports.
Look for:
- Accounts you do not recognize
- Incorrect payment information
- Wrong balances
- Incorrect personal information
- Accounts that should have been removed
If you find an error, you can dispute inaccurate information with the relevant credit reporting company and, when appropriate, the company that provided the information.
5. Be Careful About Opening Too Many Accounts
Opening several credit accounts within a short period can make lenders and scoring models see more recent credit activity.
When you apply for certain types of credit, a hard inquiry may appear on your credit report.
That does not mean you should never apply for credit.
Instead, avoid opening new accounts simply because you receive promotional offers if you do not actually need them.
Apply for credit when it fits your financial plan.
6. Keep Older Accounts Open When Appropriate
The length of your credit history can be one factor in credit scoring.
Older accounts may contribute to the age of your credit history.
That does not mean you should keep every account open forever.
If an account has expensive fees or no longer fits your financial needs, closing it may still be reasonable.
Before closing an older credit card, however, consider how doing so could affect your available credit and overall credit profile.
7. Have Different Types of Credit Only When Needed
Credit mix can be one factor in some scoring models.
A credit profile might include credit cards, installment loans and other types of credit.
But you should not take out a loan simply to create a better credit mix.
Borrowing money costs money.
If you do not need a particular type of credit, there is usually no reason to take on debt solely for the purpose of changing your credit score.
8. Pay More Than the Minimum When You Can
Making at least the minimum payment can help keep an account current, but paying more can reduce your outstanding balance faster.
Lower balances can reduce interest costs and may also lower your credit utilization.
If you have high-interest credit card debt, prioritizing repayment can be an important part of improving your overall financial position.
9. Create a Debt-Payment Strategy
If you have multiple credit card balances, it can be difficult to know where to start.
Two common strategies are the debt avalanche and debt snowball methods.
With the debt avalanche approach, you generally focus extra money on the debt with the highest interest rate first.
With the debt snowball approach, you focus on the smallest balance first to create quick wins.
Neither method is automatically best for everyone.
The most useful strategy may be the one you can follow consistently.
10. Be Patient
Credit improvement takes time.
If you have missed payments, high balances or other negative information on your credit report, changing your habits today will not necessarily produce an immediate dramatic improvement.
Positive information can accumulate as you continue making payments on time and managing credit responsibly.
Avoid companies that promise to “fix” your credit instantly.
The Federal Trade Commission warns consumers about credit repair scams and says accurate negative information generally cannot simply be removed from a credit report because someone promises to do so.
Does Checking Your Own Credit Hurt Your Score?
Checking your own credit report is generally considered a soft inquiry and does not hurt your credit score.
That makes regularly reviewing your own credit information a useful habit.
The important distinction is between checking your own credit and applying for new credit, which can result in a hard inquiry depending on the situation.
Understanding this difference can make consumers more comfortable monitoring their credit.
What If You Have Bad Credit?
A low credit score does not mean your financial situation cannot improve.
Start by identifying the problems affecting your credit.
If you have missed payments, focus first on paying current accounts on time.
If your credit card balances are high, work on reducing them.
If your credit report contains errors, dispute them through the appropriate channels.
Improvement may take months or longer, but consistent financial behavior can make a meaningful difference.
Avoid Closing Every Credit Card at Once
Some people become concerned about debt and decide to close all of their credit cards.
While reducing access to credit can sometimes be appropriate, closing multiple cards at once can reduce your available credit and potentially increase your overall utilization.
Before closing an account, consider the effect on your credit profile and financial situation.
If you are struggling with debt, addressing the underlying spending and repayment problem is more important than simply changing the number of open accounts.
Credit Score Is Not the Same as Financial Health
A credit score is useful, but it is not a complete measure of your financial situation.
Someone can have a high credit score while carrying significant debt.
Another person may have a lower score but be actively paying down debt and building savings.
Your broader financial picture includes income, savings, debt, expenses and financial goals.
A good credit score should be viewed as one part of a larger financial plan.
When Should You Get Professional Help?
If you are overwhelmed by debt or struggling to make payments, consider seeking help from a reputable nonprofit credit counseling organization.
Do not wait until the situation becomes unmanageable.
If you are considering bankruptcy, debt settlement or other major financial decisions, professional legal or financial guidance may also be appropriate.
Be cautious about anyone who guarantees a specific credit score increase or demands large upfront fees for supposedly guaranteed results.