Typically, the most important factor in your credit score is your payment history. However, credit utilization (your balances versus your credit limits) is another key component.
Keeping your balances low in relation to your available credit can improve your scores. Getting an installment loan can help, too, as long as it’s reported to the credit bureaus on time.
Pay Your Bills on Time
One of the fastest and simplest ways to raise your credit score is to pay all of your bills on time. In fact, a payment history makes up the largest percentage of your credit score.
Another simple way to improve your score is to reduce your credit card balances. You can do this by paying down your balances, requesting a credit limit increase (be careful not to exceed the new limit), or simply using a card with a lower interest rate to pay off higher-rate debts.
Set all of your recurring payments on auto-pay or set payment reminders to ensure that you don’t miss a due date. One 30-day late payment can drop your score by 90 to 110 points and stays on your report for seven years. This negative mark can detract from your score and cost you hundreds or even thousands in interest rates when borrowing. A clean credit report can get you the best loan rates available.
Reduce Your Credit Card Balances
Keeping your credit card balances low improves your credit score under the “amounts owed” category, which relates to how much of your available credit you’re using. Aim to keep your utilization ratio below 30% of the credit limit for the best results.
You should also avoid putting new debt on your credit cards to prevent an immediate drop in your credit scores. This applies to installment accounts such as auto and student loans, as well as revolving credit cards.
If you need to raise your credit score quickly, you can apply for a personal loan to pay down the credit cards with the highest utilization ratios. This will result in a hard inquiry on your credit report, but should only ding your score temporarily as you use the funds to pay off debt. You could also ask your credit card company for a higher credit limit, which will help lower your utilization rate. This is especially helpful if you can make your payments on time.
Avoid Applying for New Credit
If you’re serious about raising your credit score, avoiding new credit is one of the best things you can do. New credit can hurt your score because of something called “credit utilization,” which is the amount you owe on revolving accounts (such as credit cards) compared to their total credit limits. It’s best to keep your utilization ratio as low as possible; ideally, you should use 30% or less of your total available credit.
If you’re applying for a mortgage, personal loan or auto loan in the near future, you should also avoid opening new lines of credit. This can lower your credit score because it signals to lenders that you’re in desperate need of more credit, which can make you a higher risk borrower. A mortgage application, in particular, will trigger a hard inquiry on your credit report and may cause your score to drop temporarily. This is a costly mistake to make. Instead, focus on paying down existing debt to improve your credit.
Keep Your Credit Card Accounts Active
It’s generally advised to keep your credit utilization ratio, or how much you owe on a particular card relative to its credit limit, below 30%. That’s one of the most influential factors in your credit score.
If you have an existing credit card with a low balance, it could be helpful to increase its credit limit by calling the issuer. This could help improve the credit mix and new account aspects of your credit score.
Credit cards are often the best way to build a good credit score, as they typically report your payment history to all three credit bureaus each month. The key is to pay your bills on time and stay below a 30% credit utilization ratio. You can also improve your score by applying for a credit card with a good welcome bonus and introductory 0% APR, but be careful not to get too carried away. Overspending can quickly damage your credit score.