How can I improve my credit score?

If you want to buy a home, a car, or  rent an apartment your credit score can mean the difference between a “yes” and a “no”. And if you do get a “yes” your score could still mean the difference of thousands of dollars in savings.

Your credit score is based on your credit history. There’s not much you can do about what’s already happened, but here three tips for improving your credit score starting today.

The number one thing you can do to improve your credit score is to make payments on time and in full, every time.

Payment history makes up the largest portion (about 35%) of your FICO credit score. A late payment on a credit card or auto loan can meaningfully drop your credit score and the record will stay on your credit history for seven years. Setting up automated payments is a great way to ensure this happens. If you can’t set up automated payments, add a reminder to your calendar to nudge you to pay on time every month.

Pay down credit balances.

Credit utilization is a combination of how much credit you have (how much you’re allowed to borrow) and how much credit you’re using (how much you have borrowed). This makes up roughly another 30% of your FICO score.

A simple example is a single credit card with a $5,000 credit limit. That’s $5,000 in available credit. If you have a $2,500 balance on that credit card that means you’re using 50% of your available credit so your credit utilization is 50%. Lenders want to see credit utilization of at or below 30%.

The simplest way to improve this is to pay down credit balances. You can make multiple payments per month to keep it at an acceptable balance or you may decide to just pay it off. You can also request a higher credit limit from your card providers if your account is in good standing.

If you pay off the entire balance on a credit card, don’t necessarily close the card immediately! 

Closing the card will decrease how much credit you have and, as a result, raise (worsen) your credit utilization. But if there is a high annual fee on the card or it tempts you to spend more, closing the card may be a good trade-off.

Open only the accounts that you need, will utilize and can afford to keep current. 

Length of credit history is another 15% of your FICO score. Creditors want to know what kind of borrower you will be in the future by looking at your past. They look at how long your accounts have been open and how often they are used. For accounts with a good history, try to keep them open even if you’re not using them at the moment.

It’s important to start building good credit well before you may need it because building and maintaining a good credit score has a lot of moving parts.

Need help putting your plan together to improve your credit score? Head to the dashboard and chat with a BrightDime coach today!