How to improve your credit score (2024)

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• Your credit score is mostly determined by your payment history and credit utilization ratio.
• You can look into credit-building products such as secured credit cards or credit builder loans.
• Finally, you should always monitor your credit report for errors or inaccuracies.

Your credit score represents how likely you are to pay off your debts, from credit cards tomortgages. The higher your credit score on a scale from 300 to 850, the lower the risk you pose to lenders. A good credit score qualifies you for better interest rates and other perks which can save you thousands of dollars when you start taking out larger loans or make milestone purchases such as a home. Your credit score can also determine your qualifications for an apartment rental.

It can be difficult to star improving credit or building credit from scratch since bad credit is self-perpetuating. If you have a bad credit score, you'll have a harder time accessing credit. Additionally, your loans have greater interest rates because lenders see you as a risky investment. You have a harder time keeping up with payments, which causes you to fall behind. That cycle repeats.

Re-building credit is an uphill battle, though there are ways to reverse the cycle.

Understand how credit scores work

Before we talk about how to improve your credit score, we need to understand a little more about how credit scores are calculated.

Credit scores are a reflection of your credit reports, which are documents created by the three major credit bureaus— Experian, Equifax, and TransUnion — that record your credit history. It will list your credit accounts, when they were opened, the current balances at the time of the report, and your payment history (on-time, late, and missed payments).

Credit scoring companies, such as FICO and VantageScore, feed your credit report through an algorithm that grades your credit history and assigns it a credit score. While companies keep the algorithms they use under wraps, but we have a general gist of how your credit report turns into your credit score.

With a general understanding of how your credit information turns into your credit score, we can start considering ways to improve your credit.

How to improve your credit score

1. Consider credit-building products

If you're starting with bad or no credit, you will need to seek out products that are available to you. This often comes in the form of credit-building products, which are designed so you can borrow money without posing too much risk to the lenders that offer these options.

Secured credit card

Secured credit cards are credit cards backed by a security deposit you place when you first open the card. The deposit also becomes your credit limit. Because you're technically borrowing against your own money when you use your secured credit card, your credit activities pose very little risk for credit card companies. This means you can qualify for a secured card with bad credit. There are some (though not many) secured credit cards that don't require a hard credit check when you apply.

You can find our guide on the best secured credit cards here.

Credit builder loans

Credit builder loans are another great way to build credit from scratch. When you take out one of these loans, the lender sets aside the money that you "borrow." You will then make monthly payments over the payment term, usually 12-36 months, that the creditor reports to the credit bureaus. Once the term is complete and your loan is paid off, you get that money that the lender set aside.

Related: The best loans for fair credit »

Similar to secured credit cards, the lender's money is never really at risk. Many credit builder loans don't even conduct a hard inquiry on your credit. Application credentials, if any, usually rely on the information from your primary checking account.

Rent reporting services

Much of your credit score is determined by how well you can keep up with monthly balances. However, a significant portion of your monthly expenses doesn't show up on your credit report. For example, in most cases, your monthly rent doesn't impact credit scores.

A rent reporting service is a third-party company that reports rent payments to the credit bureaus, so you can build credit on payments you're already making.There are similar services, such as Experian Boost, that report other monthly payments such as your monthly subscription fees and utility bills.

While these can help, there are some limits. For one, some rent reporting services require your landlord's approval. However, many of the best rent reporting services do not. Additionally, not all credit scoring models factor rent into their calculations, even if they show up on your credit report. While VantageScore 3.0 and FICO 9 include reported rent, FICO 8 (one of the most widely used credit scoring models) does not.

Become an authorized user

If you know anyone who would be willing to add you to their credit card, becoming an authorized user on someone's credit card will help you build credit. This option is popular for parents building credit for their children. "Authorized users can see an increase in their credit score because the payment history for the primary cardholder will be reported under their credit file," says Brandon R. Amaral, a Certified Financial Planner and founder of Amaral Financial Planning.

While becoming an authorized user will affect your payment history, it will also affect your credit utilization ratio, the amount of credit you're using compared to your total available credit. This can end up hurting you.

For example, let's say you're an authorized user on a card with a $4,000 limit. The primary cardholder has a credit limit of $30,000 including other cards they use while you just have the one card. They can spend $1,500 on that card, and they'll only be using 5% of their credit. Meanwhile, that charge leaves you with a utilization ratio of 37.5% already.

2. Request a credit limit increase on credit cards

It's generally recommended to keep the credit utilization ratio on your revolving credit accounts under 30%. That said, every dollar that you're in debt has an impact on your credit score. If you're having a hard time keeping that down with your current limit, you should consider requesting a credit limit increase on your credit cards. "If your income has increased, most credit card companies are happy to increase your credit limit," Amaral says.

Most of these credit card companies have some kind of portal through which you can request a credit limit increase, and will respond to your request in minutes if not seconds. You can make these requests every six months. However, you will need a spotless payment history to get a limit increase. A credit limit increase request may also trigger a hard inquiry on your credit.

3. Avoid applying for new lines of credit

It may be tempting to open new lines of credit when you're trying to build credit. However, every time you apply for a new loan or a new credit card, the credit reporting agencies receive what is called a hard inquiry, which is then recorded on your credit report. One hard inquiry may drop your credit score by a few points, but these compound exponentially with each additional hard inquiry. This is because creditors will wonder why you're taking out so much credit in such a short period of time, and, more importantly, if you're good for it.

A new line of credit will also drop the average account age, another factor that credit scoring models consider. "Every time you apply for a new line of credit, your credit score will initially drop," Amaral says. "This is because your average account age will decrease from adding new credit cards."

4. Keep old credit accounts open

Maybe you don't really use that first credit card you qualified for. Instead of canceling it, just stow it away. Canceling it will reduce the average age of accounts on your credit report, which will hurt your credit score. Additionally, Amaral says "closing an old card that has most of your good payment history will hurt your score."

Another reason closing a credit card can hurt your credit is because its credit limit will no longer be included in your utilization ratio.

If you do keep an old credit card open and forget to use it occasionally, the bank could actually close it due to inactivity. "What they can do is place a small, recurring bill on that credit card, so that it continues to build history and isn't at risk of being closed due to inactivity," Amaral says.

5. Resolve any accounts that are past due

Bringing past-due accounts current is a key step in improving your credit scores. Remember that payment history is 35% of your credit scores, so the sooner you have a positive payment history, the better. Amaral suggests reviewing all your payment plans and interest rates and developing a strategy to pay off the loans or accounts to minimize the interest they will pay. Once the accounts are current, you can revise your payment plan to pay the accounts each month to pay off the entire balance.

If your credit payment is already in delinquency, meaning it's at least 30 days late, the damage to your credit can be severe. However, you can attempt to get the delinquency on your credit report removed through a goodwill letter. This is more likely to work if you have a history of keeping your balances in check.

6. Monitor your credit reports

Your credit report isn't infallible. In fact, errors on your credit reports are quite common, and errors are steadily rising. In 2021, 34% of consumers found an error on their credit reports.

These errors can be as innocuous as a misspelled name, but they can also be damaging to your credit score, such as a misreported delinquency or a hard inquiry that you didn't approve. While you should be disputing errors on your credit report regardless of their severity, these bigger issues warrant additional investigation. If, for example, you find an entire line of credit that you didn't open on your credit report, you're likely the victim of identity theft.

You can monitor your credit by reviewing free credit reports from the credit bureaus. You can request these credit reports from each of the three credit bureaus weekly. You can also sign up for a credit monitoring service, which notifies you of any updates to your credit report or credit score. Some of the best credit monitoring services are even free.

For more heavy duty monitoring, you can sign up for identity theft protection. These services will monitor your identity and provide recovery tools if it is stolen. You can find our guide on the best identity theft protection services here.

When working on your credit, it's important to note that improvements to your credit score will slow as it rises. It's easier to get your credit from a bad score to a good score than it is to improve your credit from a good score to an excellent credit score.

It's also worth mentioning that building credit takes time, as frustrating as that is to hear. You can be doing everything right, paying off your bills on time and keeping your utilization ratio low, but if your accounts are relatively new, you will need to be patient.

Improving credit score frequently asked questions (FAQ)