An awesome credit score can give you access to the best credit cards, the best personal loan terms, and ultra-low interest rates on auto and home loans. A bad score? It will severely limit your lending options, force you to pay sky-high interest, and may even prevent you from qualifying for that home or apartment rental.
Developing healthy credit habits can help you feel in control of your personal finances—and feel more satisfied in other areas of your life. And fortunately, the power to get back on track is in your hands. If you’re wondering how to improve your credit score and credit history as quickly as possible, these easy steps will help you get there.
More than a third of your credit score is based on how well you pay the bills that are reported to the credit bureaus. In fact, paying your monthly credit card or personal loan payments late even a few times can knock valuable points off your score. So, the single best thing you can do to beef up your creditworthiness is to ensure you pay at least the minimums owed.
Need some help sticking to a schedule? Try these hacks:
How much of your credit card limit are you currently using? That percentage is called your credit utilization ratio, and—if it’s more than 30%—you’re likely hurting your score. In fact, studies show that people with the highest credit scores routinely use well under 10% of their available credit.
Your credit utilization ratio weighs heavily in the calculation of your credit score—almost as much as your bill payment history. So, try these tips to minimize your ratio and improve your FICO score:
>> MORE: Score your financial health. Take our quiz and learn what steps you can take to get on track.
Remember: Your credit utilization ratio is the portion of your credit that you’re actually using. For instance, if you charge $2,000 to a card whose limit is $5,000, your ratio is 40%.
As you’ve seen, you can reduce that $2,000 balance to decrease your utilization ratio. But you can also lower your ratio by increasing your credit limits.
Here’s an example: Suppose you’re still charging $2,000 to your card. Only now, your limit has increased to $8,000. So, your new credit utilization ratio is just 25%. Keep in mind that requesting an increase to your credit limit might initiate a hard inquiry to your credit reports. This might impact your credit score in the short term, but as long as you’re keeping your spending the same (or lower) and practicing good credit habits, it should bounce back quickly.
Check with each of your creditors to see if you’re eligible for an increase to your credit limits. (If you’re not, find out when you will be.) Acclaimed financial blogger Holly Johnson offers some excellent advice on The Simple Dollar for knowing how to time your request.
Great credit takes time to build. Potential lenders want to see that you have a long history of being responsible with debt, and credit cards you’ve carried for years can provide some of that evidence.
Knowing when to close or keep open an old credit card requires some thought (and understanding your credit utilization ratio). Often, if you rarely (or never) use a card, or have switched to using a new card, the age of your old card can contribute to a better credit score if you keep it open. Not to mention, closing a card could make it seem as though you’re newer to the credit scene than you actually are. In general, leaving older cards open may help your credit score, but it’s important to consider other factors as well, such as any annual fees you may be paying, or the need to reduce the temptation to spend.
Once you’re on top of your financial game, building great credit is simply a matter of time and dedication. Over the years, responsible spending and repayment will do the work for you. Even so, it’s important to monitor your progress along the way.
Start by keeping tabs on your credit score. These days, most major credit card companies offer you a free look at your score every single month online and on your statement. Many will even alert you if there’s a significant change from one month to the next.
Second, check your credit report regularly. Each year, you’re legally entitled to view your free reports from each of the three credit reporting agencies—Equifax, Experian, and TransUnion.
Beware: mistakes on credit reports are common and can cost you valuable credit score points. Make sure to investigate and double-check that your information is accurate.
If you do find an error or suspect fraud, contact the credit bureau to dispute the data. Each agency is required by law to remove false information from your report. (If you need more details on the process, check out Clark Howard’s step-by-step explanation.)
Finally, hang in there. Even if you’ve made some credit-damaging mistakes in the past, their impact will fade over time. Even major black marks like foreclosures and bankruptcies affect your score less as the years pass. Within 10 years, they’re completely forgotten.
No matter where you’re starting from, applying these valuable steps now to increase your credit score will make a difference. Like anything that is worth doing, building your credit score takes time. So, the sooner you incorporate these practices into your everyday life, the sooner you’ll be on your way to an amazing score and a brighter financial future.
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