You’re likely aware that having a higher credit score can simplify obtaining a loan or secure better borrowing terms. So, how can you enhance your credit score? Here are 6 tips to help boost it.
1.Pay your bills on time
Your payment history constitutes the most significant portion—35 percent—of your credit score. Even minor errors can significantly impact your score. Late or missed payments remain on your credit report and can influence your score for up to seven years.
Always ensure you make at least the minimum payment by the due date. To avoid missing payments, set up reminders and automatic payments through your accounts. Just be sure you have sufficient funds to cover your bills. Additionally, review your credit reports at least annually and correct any inaccuracies.
2.Keep your balances low
The second most significant factor in calculating your credit score is your credit utilization rate, which measures how much of your available credit you’re using. If this rate is high—indicating you’re nearing your credit limits—lenders might see you as more likely to default.
Having and using credit cards isn’t necessarily a negative, but managing your debt is crucial. Ideally, you should pay off your credit card bills in full each month. If that’s not possible, pay as much as you can. Aim to keep your credit utilization rate under 30 percent. For instance, with a $10,000 credit limit, your balance should stay below $3,000. Additionally, ensure you understand how credit limits function.
3.Don’t close old accounts
Your credit score takes into account the length of your credit history and the ages of your various accounts. Generally, a longer credit history contributes to a higher score. Closing older accounts can decrease the average age of your accounts, which may negatively affect your score. Additionally, the recency of your account usage is important. Even if you plan to keep an old account, it might be closed by your credit card issuer if it remains inactive for an extended period.
Keep older credit cards active, even if you don’t use them frequently. You might consider charging small, recurring expenses like streaming subscriptions to these cards. Set up payment reminders or automatic payments to ensure you pay off the balances on time. Additionally, be cautious about opening new accounts, as they can reduce the average age of your accounts.
4.Have a mix of loans
Lenders prefer to see that you can handle multiple types of credit simultaneously. Ideally, having a combination of credit cards and installment loans—like a mortgage, auto loan, and student loans—that you manage and repay on time is beneficial.
This aspect has a relatively minor impact on your credit score, so opening new accounts solely to boost your score is unlikely to be effective. However, it’s important to be aware of the types of loans you have and consider enhancing your credit mix when you need to borrow money in the future.
5.Think before taking on new credit
Opening a new credit card can have both positive and negative effects on your credit score, so it’s essential to approach this decision carefully. Research indicates that individuals who open multiple credit accounts within a short timeframe may be considered higher credit risks by lenders, according to FICO, a leading credit score provider. When you apply for a new card, your credit score might temporarily drop due to the hard credit inquiry and the reduction in the average age of your accounts.
Open new accounts only when necessary and avoid doing so if you’re planning to apply for a mortgage or other significant loan. If you do get a new credit card, try to use it minimally. This approach helps keep your credit utilization low, which can benefit your credit health. Additionally, if you have a limited credit history, a new card might enhance your score, provided you make timely payments and manage your debt responsibly.
If you consistently pay on time and manage credit wisely, you’re already heading in the right direction. To further improve your financial management, educate yourself about how your credit score is calculated. Consider signing up for a credit tracking service to monitor your score regularly; many banks and credit card companies offer this service at no cost.
6.Don’t open too many accounts at once
FICO and VantageScore both consider the number of credit inquiries—such as applications for new financial products or credit limit increases—as well as the number of new accounts you open. Frequent inquiries of this nature can negatively affect your credit score, so apply only for what you genuinely need to avoid harming your score. Additionally, even with a good credit score, some issuers may automatically reject your application if you’ve opened too many accounts recently. For instance, most Chase cards will not approve you if you’ve opened five or more personal credit cards (from any issuer) in the past 24 months.
If you’re interested in a new card but unsure of your eligibility, you can complete a pre-qualification form online. Submitting these forms does not affect your credit score, so you can submit as many as you wish.
