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A solid credit score comes with a lot of perks. Good credit can help you qualify for the things you want and need—like a mortgage, an auto loan or a sweet welcome offer on a rewards credit card. It may also help you save money on everything from interest rates to security deposits to auto insurance premiums.

If your credit score needs some work, there's good news. In many cases you can improve your credit score with a few steps. It all starts with understanding what affects your score, including payment history, credit utilization and the length of your credit history. This guide can help you learn what affects your credit and how to improve your credit score.

Steps to improve your credit score:

  • Check your credit report
  • Dispute any credit errors
  • Make on-time payments
  • Pay down credit card debt
  • Keep your credit cards open
  • Don't apply for unnecessary credit

1. Check Your Credit Report

Start your credit improvement plan by reviewing your credit reports from Equifax, TransUnion and Experian. Credit scoring models, like FICO and VantageScore, base your credit scores on the information found on those three reports. So, understanding what is on your credit reports and how those details shape your credit scores is essential if you want to boost those important numbers.

AnnualCreditReport.com provides an easy way to check your credit reports. The website helps you access the free reports you're entitled to under the Fair Credit Reporting Act (FCRA) once every 12 months. Even better, the three credit reporting agencies are now offering free weekly credit reports to U.S. consumers. A credit monitoring service can also help you by letting you know when something changes on your report.

When you review each of your credit reports, pay attention to the following:

  • Note anything that might be hurting your credit score: Check for late payments, collection accounts, credit cards with a high balance-to-limit ratio and too many hard credit inquiries. We’ll cover these more below.  
  • Watch for credit reporting errors: Accounts you don't recognize, invalid account balances, incorrect late payments and credit inquiries you didn't authorize could all cause you problems.
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2. Dispute Any Credit Errors

A Federal Trade Commission (FTC) study reveals that credit errors are more common than many people realize. Per the FTC, one in five consumers have errors on their credit reports that might impact their credit scores. Credit errors can damage your credit score, potentially making it harder and more expensive for you to borrow money. So, if you discover credit reporting mistakes it's important to do something about them.

The FCRA empowers you with the right to challenge inaccurate information on your credit report. You can send a dispute to the appropriate credit reporting agency and it must investigate your claim—typically within 30 days or less.You can hire professionals to send disputes on your behalf, but you can also manage the dispute process on your own—for free. The Consumer Financial Protection Bureau even provides free dispute letter templates you can use to make the process easier.

3. Make On-Time Payments

Good credit scores and positive payment history go hand in hand. In fact, 35% of your FICO® Score comes from your payment history. If you want to improve your credit score (or keep the good credit you've already worked hard to earn), paying bills on time and in full is a must.

Even the occasional missed payment might impact your scores. In general, the higher your credit score, the more room it has to fall when a new late payment occurs. FICO research shows that someone with a 793 credit score might experience around a 60-80 point decrease in their credit score if they miss a payment by 30 days.

These strategies can help you avoid late payments and the credit score damage they often cause:

  • Review and tweak your monthly budget often to avoid overspending.
  • Set up automatic payments to prevent missing due dates by accident.
  • Schedule payment reminders on your smart phone or online calendar.
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4. Pay Down Credit Card Debt

The average credit card interest rate is over 22% as of August 2023, according to the Federal Reserve. If you’re hit with interest charges, that can add up fast. If you’re able, reducing credit card debt could improve your credit score.

FICO and VantageScore credit scoring models both pay close attention to a factor known as your credit utilization ratio. Credit utilization is the percentage of your available credit card limits you're using (based on your credit report). For example, if you have a $5,000 balance on a credit card with a $10,000 limit, your credit utilization rate is 50% for the account.

The general rule of thumb is to aim for a credit utilization of 30% or less, but if you can keep it even lower, it could pay off even more.

Quick Tip

Even if you can’t pay off your credit card debt all at once, your credit score might improve in increments as you slowly chip away at your balances.

The Debt Avalanche Method

The debt avalanche method is a way to help people tackle debt. Consider trying this strategy to save money and possibly pay off debts faster: 

  1. Make a list of your credit card balances and interest rates.
  2. Arrange your list from the account with the highest interest rate to lowest.
  3. Pay as much money as you can each month toward the credit card with the highest interest rate.
  4. Make the minimum payment on every other account.
  5. After you pay off the card with the highest interest rate, move down the list and repeat the process.

5. Keep Your Credit Cards Open

One of the common credit mistakes I've seen over the years is people closing credit cards in the hopes of improving their credit score. And while there are some valid reasons for closing a credit card (such as canceling joint credit cards in a divorce), those closures don't help your scores. In fact, closing a credit card is more likely to hurt your credit score than help it—the closure could actually increase your overall credit utilization rate. 

Here's an example. Imagine you have the following three credit card accounts:

Balance Limit Utilization Rate

Credit Card No. 1

$5,000

$5,000

100%

Credit Card No. 2

$0

$10,000

0%

Credit Card No. 3

$7,500

$10,000

75%

Overall

$12,500

$25,000

50%

50%

As you can see, the aggregate credit utilization rate for the three credit cards above is 50%. 

Now, let's take a look at what happens if you decided to close Credit Card #2 with a $0 balance:

Balance Limit Utilization Rate

Credit Card No. 1

$5,000

$5,000

100%

Credit Card No. 3

$7,500

$10,000

75%

Overall

$12,500

$15,000

83%

83%

Closing Credit Card No. 2 would raise your overall credit utilization rate to 83%. Even though you didn't charge up more credit card debt in the example above, your credit utilization rate would increase because you closed an unused account.

Another reason to keep your cards open is because 15% of your FICO® Score is based on your length of credit history, including your average age of credit. Closing a credit card doesn't erase the account from your credit report, so it won't reduce your average age of credit right away. However, the credit bureaus purge closed, positive accounts from your credit reports after 10 years. A decade down the road when the account comes off your credit report, it might hurt your credit score again.

6. Don't Apply for Unnecessary Credit

When someone checks your credit, the credit bureau that shared your information adds a record to your report. This record is known as a credit inquiry.

Some credit inquiries don’t affect your score. These "soft" credit inquiries occur when you check your own credit, for example, or when a company reviews your credit for advertising purposes.

Other credit inquiries—called "hard" inquiries—do have the potential to damage your credit score. The most common type of hard inquiry takes place when you apply for financing.

Still, it's important to keep the effect that hard inquiries may have on your credit score in perspective:

  • Inquiries are one of several factors that influence just 10% of your FICO Score.
  • One hard credit inquiry lowers credit scores by less than five points for most people, according to FICO
  • Some hard inquiries won't affect your credit score at all.

Because of the facts above, you don't need to be afraid to apply for new credit when you need it, or when you want to take advantage of a good deal. Just don't apply for new credit excessively and you should be in good shape here.

How to Increase Your Credit Score Quickly

When it comes to credit improvement, many strategies take time to make a meaningful difference. Yet there are some actions that have the potential to increase your credit score quickly:

  • Try Experian Boost: This service gives Experian permission to comb your bank account  bill for things like utilities, your cellphone and streaming services. If you have positive payment history on eligible accounts, Experian Boost will add them to your Experian credit report, which can help improve your score.
  • Reduce your credit utilization ratio: Paying down your credit card balance is one way to lower utilization. You can also ask your credit card issuer for a credit limit increase. If the company approves your credit limit request, your credit utilization rate could go down and trigger a credit score increase in return.
  • Become an authorized user: When a family member or trusted friend makes you an authorized user on a positive credit card account (i.e.g, no late payments and low utilization), it might help your score. Just be aware that a poorly managed credit card could have the opposite effect.

Bottom Line

Working toward earning a better credit score is a worthwhile goal. If you're successful, your efforts can pay off in meaningful ways, such as money saved and better financing options.

Just remember to be patient on your journey toward better credit. Significant credit score improvement usually takes time. However, with each step in the right direction, you may start to enjoy some of the perks of good credit long before you reach your final destination.

ML

Michelle Lambright Black

Michelle Black is founder of CreditWriter.com and HerCreditMatters.com. Michelle is a leading credit card journalist with over a decade and a half of experience in the financial industry. She’s an expert on credit reporting, credit scoring, identity theft, budgeting, small business, and debt eradication. Michelle is also a certified credit expert witness and personal finance writer.