It’s possible to improve your credit scores by following a few simple steps, including opening accounts that report to the credit bureaus, maintaining low balances, and paying your bills on time. However, it can be difficult to know where to start. Whether you’re building your credit from scratch or rebuilding after your scores have taken a hit, it’s important to learn how your credit scores are calculated the basic ways to improve them. Then, you can dive into more detailed guides based on your situation.
Steps to Improve Your Credit Scores
The specific steps that can help you improve your credit score will depend on your unique credit situation. But there are also general steps that can help almost anyone’s credit.
1. Build Your Credit File
Opening new accounts that will be reported to the major credit bureaus —most major lenders and card issuers report to all three—is an important first step in building your credit file. You can’t start laying down a good track record as a borrower until there are accounts in your name, so having at least several open and active credit accounts can be helpful.
These could include credit-builder loans or secured cards if you’re starting out or have a low score—or a great rewards credit card with no annual fee if you’re trying to improve an established good score. Getting added as an authorized user on someone else’s credit card can also help, assuming they use the card responsibly.
2. Don’t Miss Payments
Your payment history is one of the most important factors in determining your credit scores, and having a long history of on-time payments can help you achieve excellent credit scores. To do this, you’ll need to make sure you don’t miss loan or credit card payments by more than 29 days—payments that are at least 30 days late can be reported to the credit bureaus and hurt your credit scores.
Setting up automatic payments for the minimum amount due can help you avoid missing a payment (as long as you’re careful not to overdraft your bank account). If you’re having trouble affording a bill, reach out to your credit card issuer right away to try and discuss hardship options.
Staying on top of accounts that don’t generally appear on your credit reports (gym memberships and subscription services, for instance) can also be important. The on-time payments might not help your credit, but the account being sent to collections could still cause your scores to dip.
3. Catch Up On Past-Due Accounts
If you’re behind on your bills, bringing them current could help. While a late payment can remain on your credit report for up to seven years, having all your accounts current can be good for your scores. Additionally, it stops further late payments from being added to your credit history as well as additional late fees.
For those having trouble with credit card debt, talking to a credit counselor and getting on a debt management plan could be a good option. The counselor may be able to negotiate lower payments and interest rates and get card issuers to bring your accounts current.
4. Pay Down Revolving Account Balances
Even if you’re not behind on your bills, having a high balance on revolving credit accounts can lead to a high credit utilization rate and hurt your scores. Revolving accounts include credit cards and lines of credit, and maintaining a low balance on them relative to their credit limits can help you improve your scores. Those with the highest credit scores tend to keep their credit utilization ratio in the low single digits.
5. Limit How Often You Apply for New Accounts
While you may need to open accounts to build your credit file, you generally want to limit how often you submit credit applications. Each application can lead to a hard inquiry, which may hurt your scores a little, but inquiries can add up and have a compounding effect on your credit scores. Opening a new account will also decrease your average age of accounts, and that could also hurt your scores.
Inquiries and the average age of your accounts are minor scoring factors, but you still want to be cautious about how many applications you submit. One exception is when you’re rate shopping for certain types of loans, such as auto loans or mortgages. Credit scoring models recognize that rate shopping isn’t risky behavior and may ignore some inquiries if they occur within the span of a couple of weeks.
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