Credit scores matter — best ways to improve yours
Discover defines credit scoring as a means of distilling your relationship with debt down to a number. That three-digit score allows lenders to quickly size up the risk of doing business with you, which can have major implications on your day-to-day life.
Credit scores come into play if you want to apply for a credit card, rent an apartment, buy a car, or switch phone providers. Pretty important elements of existing in the modern world, right?
Credit scores range from 350-850, and most lenders look for scores above 650, with preferences given to those with scores in the 700s and higher.
A low score, on the other hand, means you may be denied access to some resources, or forced to pay higher deposits and interest rates.
If you don’t know your credit score or you know it’s bad, here are some tips for improving your score.
How to improve your credit score
Get a baseline first
First things first, you can’t improve upon what you don’t know.
Get started by running a credit report. There are three credit reporting agencies that provide this information, Experian, Equifax, and Transunion. All three offer one free report per year, we recommend staggering these throughout the year, so you can monitor your credit on a regular basis.
For ongoing tracking, most credit card companies provide a free credit tracker, which reports on a weekly basis. If you don’t have a credit card, Credit Karma allows you to check your status for free, too.
The only downside is, the app does promote financial products alongside the tool, which some users might not like.
Set up payment reminders or autopay
Making payments on time accounts for a high percentage of your credit score. Which makes sense, this metric demonstrates to lenders that they can count on you to make payments on time.
Late or missed payments hurt your credit, and after a month of nonpayment, the three credit reporting agencies will be notified of your delinquency.
The best way to keep track of payments is to sign up for auto payments — so you can set it and forget it.
We do also understand that autopay can be a big source of anxiety for those dealing with debt on a limited income. If you feel uneasy about automatic payments, request that your creditors send you a reminder about upcoming bills—most companies do this now.
Dispute any errors on your reports
Check all of your credit reports — Transunion, Equifax, and Experian — for any errors. These might include hard inquiries (applications for auto loans or credit cards) or an unpaid bill you don’t recognize.
Incorrect information can cause your scores to drop, so if you see anything that doesn’t add up, make sure you dispute that information and clear things up ASAP. For more information on how to dispute an item on your report, we’ll refer you to the FTC’s official guide.
Limit hard inquiries
Hard inquiries usually occur when you apply for credit or try to rent an apartment or get a loan. Unfortunately, when you apply for these resources, they can slightly lower your credit rating.
A lot of hard inquiries at once might signal desperation — you need a loan, say, and you’ve applied for several different options. That raises a red flag with the credit reporting agencies, as it looks like you’re trying to get a lot of credit or you keep getting declined.
While you can’t get around hard inquiries if you’re trying to rent an apartment or sign up with a new utility company, we recommend checking the criteria for loans and such before submitting the actual application. We also don’t recommend applying for say, financing multiple cars at a time.
Don’t max out your cards
Card utilization is one of the biggest parts go your credit score. What this means is, the lower the percentage of your credit you’ve used, the better.
Ideally, you should aim to carry a balance of no more than 30 percent of your available credit.
If you have multiple card balances, consider consolidating them to one credit card or a personal loan. This allows you to take a more strategic approach to lowering debt — and reduces the amount of interest paid each month.
Another thing to think about: even if you’re paying off your credit card balances in full each month, your credit utilization ratio might not look as good as you think.
Credit card companies typically report your current balance to the credit bureaus—so it has more to do with the snapshot of your account at any given time, not so much your record of on-time payments.
One way to combat this is making multiple payments per month, so the balance stays below that 30% threshold.
If you’re looking for an easier way to juggle multiple credit cards, sign up for a service like Tally. The service allows people to lump multiple payments together into a single monthly payment.
Watch out for fraud
Data breaches are no joke these days. Between the Equifax breach and the Facebook leak, you need to be careful about the information you share online.
Use strong passwords and PINs—if you can’t remember, use a password manager. Options like 1Password or LastPass are perennial faves, as they allow you to forget your passwords and stay safe. No more forgetting those annoying special character codes or storing everything on a low-tech post-it note.
Check your bank statements and credit scores on a regular basis — make sure there are no unauthorized charges.
Additionally, investing in a system like Lifelock or IdentityForce is a smart idea. If someone gets a hold of your social security number and birthdate they can steal from accounts, open credit cards, and file tax returns — all of which can have a dramatic impact on your credit score years down the line. You can click here for a 10% Lifelock discount for Softonic readers.
Don’t close old accounts after you pay them off
It sounds like a smart thing to do. You’ve knocked out your credit card debt, and the next thing on the agenda is closing the account.
While that seems like a good plan for keeping your finances in check, closing an account can count against you on your credit report.
It’s better to keep your account open and paid off — which shows future creditors that you are low risk.
Have patience: your score won’t change overnight
Raising your credit score isn’t an overnight fix. Instead, it’s a process that requires patience and a few new habits. In the meantime, make sure you’re paying your bills and using credit responsibly.
Eventually, your score will rise.