The Best Ways To Improve Your Credit Score

Having a solid credit score is key to your financial health, allowing consumers to access lower interest rates and better terms on mortgages, credit cards, auto loans and more. Lenders look at your score to see how well you have handled credit in the past, using it as an indicator of how likely you are to pay back the money they lend you in the future.

Credit scores usually range from 300 to 850; the higher the score, the better your credit, and the more attractive rates you’ll be offered. Could your credit score use a boost before applying for a loan? Here’s what you need to know.

How your credit score is determined

You can’t build your credit score if you are not sure how it’s created. There are three main bureaus that calculate your credit score, but there isn’t a specific formula that dictates your score. However, there are five key factors that influence it:

1. On-time payment history: Most credit experts believe this is the most important factor, accounting for as much as 35% of your credit score. This number can go down with even one late or missed payment so it’s vital to always pay your bills on time.
2. Length of credit history: This metric is based on how long you have been building your credit. The longer you have been borrowing money and paying it back on time, the higher your credit score.
3. Credit utilization: This is related to how much of your available credit you are using. Say you have a credit card with a limit of $1,000. Even if you pay your credit card bill in full every month, experts suggest that you still should only use up to 30% of your available credit; in this case, $300.
4. How much credit you’ve applied for: On the other hand, lenders don’t like to see that you’ve applied for multiple credit cards or loans all at once. That’s because even if you don’t use them, the lender will see that theoretically you could max them out all at once, which makes you a less-attractive credit risk.
5. Credit mix: This is the different types of credit that you have, from credit cards to auto loans, mortgages and student loans.

Eight ways to improve your credit score

Now that you know what factors affect your credit score, you’re probably wondering how to improve your score, so here are eight ways to start today:

1. Find out your current credit score.

Wondering how your credit is now? While the three bureaus keep separate credit scores, you can monitor them all through one portal. Visit Valley Strong Credit Union’s website to link to the portal where you can check your credit score. Usually you can only check each bureau once each year for free, but during the pandemic, the three bureaus started giving consumers free weekly access, a benefit that continues through April 20, 2022.

2. Report any errors.

Look for any errors; for example, if they reported a payment as “late” that you know was on time or have your name confused with someone else’s. Contact the credit agency and report the information as inaccurate so they can correct it. (This article has all the contact information and tips on how to approach it.)

3. Pay your bills on time.

As the largest factor in your credit score, it’s imperative to pay your bills on time, every time. Setting them up for autopay can ensure you never accidentally miss a payment.

4. Make payments on your debt.

If you already have credit card debt, that’s ok. The key is to start paying it down systematically. Make a list of all your debts and start paying them off one by one, while still making at least the minimum payment on each of your bills. Another option is to apply for a personal loan. This will allow you to pay off multiple debts and only have one loan with one payment each month.

5. Don’t cancel an old credit card.

Remember where we talked about length of credit history? As you start receiving more credit card offers, maybe for one with better perks, it can be tempting to cancel an old card. However, closing a long-standing card can lower your credit score. A better strategy is to keep it, even if you don’t use it regularly. Consider having one recurring bill, such as a streaming service, applied to it each month so it looks active but you don’t have to actively manage it. Just make sure to set it for autopay so you don’t forget to take care of it.

6. Manage your credit utilization.

As mentioned above, most experts recommend you only use 30% of your credit. If you are routinely going above that, you can ask your credit card issuer to increase your limit, or apply for a new card so you can divide your expenditures more equally.

7. Don’t apply for too much credit at once.

Every time you apply for a card, it can affect your credit score, even if you don’t end up opening that card. The one exception is if you are shopping for a car loan or a mortgage. The credit bureaus realize that savvy customers will be shopping around and looking at a variety of lenders to make sure they are getting the best deal. So, if you make several inquiries for a car loan or a mortgage within a short period of time, such as a week, that will only count as one inquiry against your credit.

8. Keep checking your score.

And, we’re back to the start. Don’t forget to check your credit regularly to make sure you haven’t inadvertently forgot to pay a bill or have credit issue you need to take care of. By implementing the steps above, lenders and creditors will have more confidence in you when applying for a loan in the future, resulting in a lower interest rate.

Want more financial wellness tips? Visit the Valley Strong Credit Union blog, or contact a banker today.