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How to Improve Your Credit Score

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What we'll cover:

  • Credit score factors - payment history, credit utilization, credit age/types, and new credit applications
  • Monitor your credit score with annual free credit reports from the main credit bureaus and other tools
  • Tips include maintaining your credit utilization ratio and keeping old credit accounts open

You probably know this, but when you apply for loans and credit cards, your credit score is going to be looked at. This matters because that three-digit score could be the difference between landing the loan or being rejected and maybe being asked to reapply at a later date.

This can feel stressful, but it may not have to be because you may have more control over your credit score than you might think. How you approach credit has the power to affect your rating — the key is understanding which actions will help your score and which actions will hurt it.

Here are four tips whch can help you improve your credit score:

1. Know the credit factors

There’s more than one way to look at credit scoring. In fact, you may have heard about two different credit scoring models. The FICO score is one credit scoring model used by many lenders. Another is the VantageScore, developed more recently by credit bureaus.

This credit score guide goes in greater detail about each of these models, but both of them use these general factors to determine your credit score:

Payment History: Your record of making on-time payments on your balances.

Credit Utilization: Your current credit usage compared to the maximum you could be using. (More details on this below.) 

Credit Age/Types: The average age of your accounts and the type of accounts you have (e.g., credit cards, personal loans, mortgages).

New Credit Applications: New credit applications and accounts opened within the last year. 

Look at each of these factors when you’re thinking about how to increase your credit score. For example: 

To help strengthen your payment history, set up auto pay for your bills to help you avoid late payments. And even when you’re using auto pay, it’s a good idea to confirm each payment went through within 30 days of its due date — this will help you catch any missed payments before they can have a negative impact on your credit score. 

New credit applications can also impact your score, so apply only for the credit you need, and avoid applying for more than one or two lines of credit within a year because applications can trigger hard credit inquiries (or “hard pulls). It can be a red flag for lenders when too many show up on your credit report within a short span of time. 

What about being added as an Authorized User?

Being added to a credit card as an Authorized User is sometimes mentioned in credit-improvement how-tos because it’s a way to get your name officially added to another person’s account. 

In theory, this would mean you’re added to the card’s credit history and could help you improve your score, but it’s not so simple. 

Your credit score won’t benefit, for example, if the credit card issuer doesn’t report your Authorized User status to the credit bureaus because they won’t know you’re on the account.

Plus, if the person adding you isn’t handling that account well themselves, their bad habits could rub off on your credit score since you’re on the account. 

2. Monitor your score

Before thinking about how to raise your credit score, know where it stands.

You can request a free copy of your credit reports each year from the three credit reporting agencies – Equifax, TransUnion and Experian. The report will provide annual insight into your credit history.

But you still need a way to monitor your score month over month. If requesting your formal credit reports is like visiting the dentist, then monitoring your score regularly is more like brushing and flossing. You need to do both to keep your “financial hygiene” in check. Doing this could be simple; some banks and credit card companies provide credit scores (fee-free) every month, and there are also a number of credit monitoring services you can subscribe to. 

Once you know your score, you’ll be able to see where you fall within the credit score ranges for FICO and VantageScore. Generally, the credit reporting agencies consider a score of about 690 or higher as a “good” credit score. A score of 720 or higher puts you in the “very good” or “excellent” category.

Dispute credit report errors

If you spot inaccuracies on your credit report it’s important to get them resolved because they could be hurting your score. 

To do this, you’ll want to contact the credit bureaus and include information such as what the error is and if it should be removed or corrected. 

The Consumer Financial Protection Bureau has a how-to for filing disputes and a letter template you can use to make your request. 

3. Maintain your credit utilization ratio

Do you know what percentage of your total available credit you currently use? To find out, simply divide the sum of how much you owe across all of your credit cards (your credit card balances) by your available credit. The result is known as your credit utilization ratio. You can calculate it cumulatively across all of your cards or per individual card. 

Say you have three credit cards with credit limits of $5,000, $6,000 and $7,000 respectively. And on those cards you have outstanding balances of $500, $1,000 and $3,500 respectively. If you divide your total balance across all cards ($5,000) by your total available credit ($18,000) you’ll get an overall credit utilization ratio of about 28 percent. However, your utilization on your highest line of credit ($3,500 / $7,000) is 50 percent. 

The ideal credit utilization rate falls below 30 percent — total, and for each of your lines of credit. Why? Because the more credit you’re using, the riskier you appear to lenders. This is why maxing out cards to their credit limits can lower your score, while maintaining a low utilization ratio is part of how to improve your credit score.

It’s OK not to focus on credit mix first (or even second)

Credit mix looks at the types of installment and/or revolving debt you may be carrying, and shows lenders how you handle these different types of debt. Credit mix accounts for 10% of your FICO credit score.

Ten percent is something, but it’s last in terms of credit score impact. Payment history, for example accounts for 35% of your score, credit utilization 30% and a long (hopefully positive) payment history is 25%. 

With this is mind, if you’re taking on a new type of debt only because you want to add to your credit mix, consider the larger credit-improvement implications. Tip #1, after all, is to apply only for credit you need.

4. Keep old credit accounts open

It can seem tempting to clean house by closing your old credit cards, especially if you rarely or never use them. But doing so lowers the average age of your accounts and affects your credit utilization ratio, as you’re taking some of your available credit off the table.

If you really want to get rid of the physical card, just remove it from your wallet, rather than closing the account. You can then reap its contributions to your credit score, even while leaving it dormant.

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How long will it take to improve your credit score?

Creditors typically update the credit bureaus every 30 to 45 days, so it could take some time before you could see your credit score move north. While you’re waiting to see your scores improve, it could be worth keeping these two things in mind: 

  • How much your credit score moves depends on what’s being reported; paying bills on time, for example, carries a lot of weight with credit scores compared to other factors.
  • Because lenders may not share information with the credit bureaus on the same day, it could take time for your score to reflect the full impact of your hard work. 

The TLDR here is to keep working on your score even if you don’t see an immediate bump.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.