A good credit score matters because it can directly affect your ability to qualify for things like loans, apartment rentals, and even certain jobs. With good credit, you also have a better chance of receiving the best rates for different loan products or obtaining a higher credit line. If you’re looking to improve your credit score, here are 26 steps to help you get started today.
1. Check your free credit reports
Your credit report is a comprehensive record of your credit history, payment activity, and more. Not all credit reports include the same information since lenders and creditors aren’t legally required to report all activity to the three credit bureaus – that is, Experian, TransUnion, and Equifax. This means the details in one report might be different from another, something that can also impact your credit score.
Get a free copy of your report from each agency individually or annualcreditreport.com. Once you have it, monitor your financial history and check for areas that need improvement. Additionally, around 34% of people have found at least one error in their report. Check yours regularly for any errors that could be dragging down your score and prepare to dispute them.
2. Get free credit scores and learn what they mean
Each credit bureau uses its own algorithm to collect data — consumer and financial — and create a credit report. Since the bureaus don’t share this information, it’s possible to have different scores.
Still, the two biggest scoring systems used today are the FICO and VantageScore 3.0. Both have scores ranging from 300 to 850. The score is based on things like payment history, the average age of open accounts, mix of credit, and credit utilization rate.
FICO Score breakdown:
- Excellent credit: 800 – 850
- Very good credit: 740 – 799
- Good credit: 670 – 739
- Fair credit: 580 – 669
- Poor credit: 300 – 579
- Excellent credit: 781 – 850
- Good credit: 661 – 780
- Fair credit: 601 – 660
- Poor credit: 500 – 600
- Very poor credit: 300 – 499
Around 90% of all lenders use the FICO Score, but many lenders, utility companies, and prospective employers use the VantageScore. That said, knowing which score will be used can help you understand your chances of qualifying for something. For example, FICO Scores 8 and 9 are widely used, but FICO Scores 2, 4 and 5 are more standard in mortgage lending.
3. Set up autopay for your bills
Payment history makes up 35% of your FICO score and is considered “moderately influential” for your VantageScore. A single late payment can remain on your credit report for up to seven years, so it is crucial that you always make at least the minimum payment on every account. The more recent the late or missed payment, the higher the impact it has on your overall score.
Set up automatic payments for any online accounts to avoid missing monthly recurring payments. Just make sure there’s enough money in your linked checking account to cover your bills. Otherwise, you could end up paying overdraft fees.
4. Focus on paying down your high balances
Paying down debts puts less strain on your budget, but it also helps improve your credit score. Credit utilization makes up 30% of your FICO Score. In 2020, the average credit card balance decreased across all consumers, resulting in a lower credit utilization ratio. Because of this, the average credit score hit a 13-year high of 710.
5. Set up a bank account and budget
A personal budget is key to improving your credit score and financial health. With one, you can start paying down debt, build savings, invest and reduce overspending. This makes it easier to pay bills on time, thus improving your credit score. Plus, with a savings account or emergency fund, you can keep yourself from accumulating more debt.
Create a budget using an online spreadsheet or by setting up an account at a bank or credit union. If you don’t have easy access to a financial institution, there are plenty of convenient, affordable online lenders like Chime. There are also various online budgeting tools and apps you can use (ex. Mint).
Certain information, such as how much money you have in a checking account, doesn’t show up in your credit report. However, having an account is beneficial since many lenders and future landlords will factor in your cash assets during the approval process.
6. Take care of all debts in collections
Paying off debts in collections won’t immediately boost your credit score, but it’ll help over time. After all, negative items (including accounts in collections) can remain on your report for up to seven years after you pay them off. However, the older the information is, the less impact it will have on your overall credit score.
Taking care of debts in collections can also stop debt collectors from harassing you. Plus, once they’re gone, you won’t have to deal with interest or other fees that come with them.
If you have an account in collections, speak with your creditor. They might be willing to work with you and remove the debt or mark it as settled. Alternatively, write a goodwill letter requesting them to remove the negative item from your report. Finally, if you believe there’s an error, write a debt verification letter to the debt collection agency to dispute it.
Further, if you’re being harassed at work, know your rights under the Fair Debt Collection Practices Act (FDCPA). Under this act, debt collectors cannot use unfair, abusive or deceptive practices to try to collect debts. This includes anything from credit cards to mortgage payments.
7. Build credit with a credit-builder loan
A credit-builder loan is a type of reverse loan with a maximum amount of $1,000 or $2,000. Rather than receive the money upfront, you make fixed payments to a specific lender over time. The money either goes into a secured account or Certificate of Deposit (CD). Once you’ve paid in full, you receive access to the money minus any interest or other fees.
For the duration of the loan, the lender will report your payment activity to the credit bureaus, which will help you build credit. By the end of the loan, you could see up to a 60-point increase in your FICO score, provided you make on-time payments.
If you’re interested in getting a loan, check out Self, an online lender with a customized credit-builder account.
8. Sign up for Experian Boost
Experian Boost lets you report payment activity on accounts that aren’t usually reported to the major credit reporting agencies, such as utilities, streaming services and phone payments. The app is free, but it only helps with your Experian score since it reports to that credit bureau only.
According to Experian, Experian Boost has helped 60% of participants increase their credit score by an average of 12 points. Experian Boost users who started the process with a “poor” FICO score of 579 or lower, 87% boosted their credit scores by an average of 22 points.
9. Credit cards: Get a secured card and use it
A secured credit card can help people who don’t have credit or have poor credit improve their score. With a secured card, you must make a deposit directly to the credit card issuer that typically serves as your line of credit. Once that’s done, you can use the card as you would any other. The card issuer will then report any activity to the bureaus. So, as long as you use it responsibly and make on-time payments, you can build up credit. However, if you default on payments, the issuers may keep your deposit.
Some lenders charge annual fees, maintenance fees or high interest rates, so keep this in mind. However, if you use the card responsibly, you might be able to upgrade it to an unsecured card and request a credit limit increase.
One reputable lender to check out is Chime. Chime’s secured Credit Builder Visa card doesn’t come with annual fees or interest and can help improve your score by up to 30 points.
10. Become an authorized user on a family member’s account
An authorized user is someone who has permission to use someone else’s credit card. However, they don’t have ownership of the account and are not technically responsible for making payments. That said, most authorized users end up paying for any purchases they make through the account.
Becoming an authorized user can help you build your credit history since your name is on the account. Both the payment activity and credit utilization will impact both you and the primary account owner, though. So, if either person defaults on payments or keeps the utilization rate high, it can hurt both people’s credit.
11. Keep your old credit card accounts open
The age and length of credit history make up 15% of your total FICO score. The older your open accounts are, the better it is for your overall credit score. Even if you don’t actively use an account, it will still add to the average length of your credit history.
Most accounts are only calculated after they’ve been active for at least six months, so a newly opened account won’t help your score. Still, having open accounts in good standing shows potential lenders that you’re responsible and unlikely to default on payments.
Some accounts come with an annual or monthly maintenance fee, which can be costly, especially if you’re not actively using them. In that case, speak with the card issuer about downgrading the card to a free or low-cost account. That way, the account can remain open but you won’t be charged.
12. Keep all of your accounts active
After around six months of inactivity, most credit card companies will close the account. Unfortunately, this will lower the average length of your credit history and could cause your score to drop by a few points. To prevent this, make a small charge to your older accounts every couple of months to keep them active. Just make sure you pay them off before you get charged interest.
13. Limit opening new accounts or lines of credit
A hard inquiry happens whenever a lender pulls your credit report to check your score, usually after you’ve applied for a loan or credit card. Each hard inquiry can cause up to a 5-point drop in your score, though your credit will bounce back after a few months.
The more hard inquiries, the higher the impact it has on your score. One or two hard inquiries a month won’t hurt your credit much. It also won’t have a noticeable impact on those with good credit. Still, you should avoid applying for multiple accounts at once.
Soft inquiries, meanwhile, won’t affect your credit score. These are what happens when you check your own report or a lender offers preapproval.
14. Apply for any new credit accounts or loans within a short period
Most people apply for several of the same types of loans — car loans, installment loans, etc. — at the same time. This lets them compare different lenders and find the best interest rates and loan terms. However, this could result in multiple hard inquiries, which could be a red flag to prospective lenders.
Fortunately, many credit scoring models, including FICO, consider multiple credit inquiries made for the same type of loan within a short time — usually within 45 days — as one inquiry. So, if you’re applying for a specific loan, do so at one time. Each inquiry will still appear on your report, but they’ll count as one.
This system doesn’t work for all loans or credit card applications, though.
15. Use a loan calculator or credit score simulator
Before applying for a loan, use an online loan calculator that lets you predict how much your monthly payments will be. That way, you know what you can afford and what you can’t.
You can also use an online credit score simulator to give you an estimate of your future credit score after getting the loan. With this tool, you can make a more informed decision and keep your credit on track.
16. Protect yourself from identity theft
Many people suffer from poor credit due to identity theft. Prevent this by using a password manager program. These programs keep your log-in information secure, especially when using a public Wi-Fi network that’s vulnerable to hackers. Whenever possible, only use secure networks when logging into private or sensitive accounts.
17. Pay attention to your credit limits
Credit cards have an upper limit of how much you can use. Generally, you can increase this amount by improving your credit score. Some issuers will even increase your credit line automatically. This can lower your credit utilization, which is the percentage of how much credit you’re using versus how much is available, and improve your credit score.
You can also ask the card issuer to lower your limit if you’re concerned about overspending. However, if you have a significant amount of credit card debt, lowering your limit could backfire by increasing your credit utilization ratio. Whatever your limit is, always shoot for a low credit utilization percentage.
18. Assess your credit mix
A credit mix is all the different types of accounts you have available, from credit cards to loans. Your credit mix makes up 10% of your FICO Score and up to 21% of your VantageScore (credit mix and age of credit combined).
If you only have one type of credit, opening a new account could give your score a boost. For example, you could have an auto loan, a credit card and an installment loan. Never take on any debts you can’t reliably repay. And learn the differences between good debt and bad debt.
19. Make the most of a thin credit file
A thin credit file is when an individual has little to no credit history, meaning they are unlikely to have a credit score at all. People who recently moved to the country or who never make purchases with credit often have a thin credit file. Long-term inactivity can also result in a thin credit file.
If you have a thin credit file, it can be difficult to qualify for an apartment rental, phone plan, or most loans. However, there are ways to improve your credit. For instance, you can get a co-signer on a loan, apply for a credit-builder loan, or get a secured credit card. Over time and with good financial habits, your score will go up.
20. Monitor your bill due dates and set calendar alerts
If you have a history of late payments, set up automatic payments or reminders on your phone and calendar to help keep you on track. Along with this, ask your lender or card issuer when the billing cycle ends. If possible, pay your bills before this date. That way, you can avoid paying additional interest or late fees.
21. Work with a credit counselor
You can find a certified credit counselor through a credit counseling organization. These organizations are typically nonprofit and are qualified to assist you with budgeting, debt management, and credit building. Some will also offer tailored services, such as debt management plans (DMPs), which can help lower your debts.
22. Stay away from for-profit credit repair companies
When working with any credit repair company, keep in mind that they cannot legally erase accurate information in your file. They can, however, help identify and fix errors in your report. They can also provide financial education or budgeting plans to help get your finances and credit back on track.
The best credit repair companies are usually non-profit, meaning they charge little or nothing for their services. However, there are also for-profit companies out there, many of which charge a high fee for their services. If an organization offers credit repair but requires a high fee, spend your money paying down debt instead. There are also a few DIY credit repair strategies that are free.
23: Add rent payments to your credit report
If you have a credit score below 620, you could start improving it by adding rent payments to your credit report. This usually requires using a service, like RentTrack or Rent Reporters, both of which will inform the credit bureaus of your payments. Depending on where you rent, your landlord might already use a similar service that you can opt into.
Most of these services charge an initial fee and a monthly fee. Some will only report to one or two of the bureaus, though those like RentTrack report to all three. Certain services will only report rent payments from the past few months, while others will go back further.
24: Apply for a loan with a co-signer
If you do not qualify for a loan, see if the lender accepts co-signers. A co-signer is usually a close friend or family member who agrees to pay back the loan if you fail to do so. For this reason, they must be responsible and have a good credit score.
With a reliable co-signer, you’ll have a higher chance of getting approved, potentially with better interest rates. Once you are approved, you can establish or start improving your credit score. Make sure the co-signer understands the risks, though. If you default on the loan, they must make payments on your behalf. Further, any activity – positive or negative – will impact both of your credit scores.
25: Tackle your student loans
As of March 2020, federal student loan borrowers have not had to make payments on their loans. Additionally, interest rates were set to 0%. This has made it easier for many borrowers to handle their financial situation throughout the pandemic.
However, the student loan forbearance period will end on May 1st, 2022, meaning any borrowers will have to start making monthly payments plus interest again. Take this time to prepare yourself so you can make your payments when the time comes.
26: Most importantly, be patient
Building good credit doesn’t happen overnight, especially if you’re starting from nothing or are coming back from a major setback like bankruptcy or foreclosure. In fact, it could take seven to 10 years to fully build your score to where you want it. Be patient and practice good financial habits and you’ll get your score to where you want it to be.
Still want to know more about how to improve your credit score? Check this out:
The bottom line
Whether you have a thin credit file or have average credit but want to qualify for better rates and terms, you can always improve your credit score. Start from where you are now and focus on tackling your existing debts. If you need extra help, don’t be afraid to reach out to a credit repair service. Otherwise, take advantage of the various financial resources and tools available online to start building up your credit.
One important factor in your credit score is credit utilization. The lower the credit utilization, the better it is for your score. In general, it’s recommended to use no more than 30% of your available credit. That doesn’t mean you should apply for multiple new accounts just to increase your available credit, though. Doing so will result in more hard inquiries and could be a red flag to potential lenders.
According to Experian, 21% of consumers have a credit score of 800+. There are a few ways to get your score this high. Keep your credit utilization low — the average person with an 800+ FICO Score has a 6% credit utilization. Monitor your credit report so you can quickly catch any errors, as well as determine areas you could improve credit-wise. Try to also keep your accounts open and in good standing to build up your credit history. Making on-time payments and keeping your credit mix varied — without applying for too many new accounts at once — can also help.
Having poor credit means more frequent rejections from loan or credit card applications, higher interest rates, less favorable loan terms, higher insurance premiums and larger deposits on rentals. Bad credit can also keep you from getting certain jobs, especially in the financial or management fields.
Most borrowers qualify for federal student loans without having credit first. Therefore, your interest rate is not affected by your credit score. However, some private lenders will require a minimum credit score or have other eligibility criteria. Depending on your score, you might benefit from a lower interest rate or a better repayment plan.
If you see an error on your credit report, you can file a dispute with the credit bureaus via an online portal or by mail. It generally takes 30 days or less to receive the results of the dispute. When disputing information, you’ll need to specify what the error is and include any documents to support your claim. You’ll also need to provide your contact information, social security number and any addresses you’ve lived at in the past two years.