7 Ways to Increase Your Credit Score
Having a good credit score opens up many doors financially. If your score is roughly 760 or above, you may have an easier time getting a mortgage or a loan, score lower insurance premium rates, and qualify for more and better credit cards.
But don't despair if your credit score is below 720: there are ways to increase a credit score. Some of them take only a little time and effort, potentially allowing you to reap near-instant results.
So, how can you increase your credit score?
The most important way is to pay your bills on time. A late payment can stay on your credit report for more than seven years.
If you've had trouble in the past resulting in a low credit score, you may be looking for additional tips to increase a credit score quickly. Let's consider some common strategies that can help get your score into the 700s or even 800s.
1. Check your credit reports
Three bureaus determine your credit score: Experian, Equifax, and TransUnion. They each assign you a score (it may not be the same at all three) based on several factors, such as your payment history (which accounts for 35% of your score) and your credit usage (another 30%). They also look at the age of your credit, the mix of credit, and the number of new credit inquiries.
You're entitled to one free credit report a year from each agency. One good strategy is to space out your requests, asking for a report from a single bureau every four months. Review the information on your report. If you see mistakes (it happens more frequently than you may think), contact the bureau and have them clear it. Knowing the details of your credit report is the first step when you're working to increase your credit score.
2. Minimize credit utilization
Credit utilization is the amount of the credit limit you're currently using. If you have a credit limit of $10,000 and you've recently put $3,000 worth of goods on your credit card, that $3,000, or 30%, is your credit utilization. It's one of the most significant factors in determining your credit score.
How can you help increase your credit score with this number? Try keeping it under 30% of your total credit limit. In our example, you shouldn't add more charges to your credit card until you've paid down your balance, since it's already at 30% of your credit limit.
3. Increase credit limits
Another way to keep your credit utilization down is to increase your total credit limit. This can be one of the best ways to increase a credit score with little effort. If you pay your credit cards regularly and on time, many credit card issuers will be glad to raise the limit on your card.
It’s important to avoid maxing out your credit card to the new limit — you still want to keep your credit utilization low. A limit of $15,000 instead of $10,000 automatically lowers your utilization if you still only owe $3,000. The lower your utilization in comparison to your credit limit, the more likely your score will increase.
4. Consolidate debt
If you're challenged by having several debts to pay off — whether they include credit card debt, car loans, student loans, or more — taking out a debt consolidation loan on beneficial terms may be a good way to increase your credit score, if you’re able to quickly pay off the debt.
Banks and credit unions can offer this type of loan. Look for one with lower interest rates than you're currently paying. This may help you pay off the debt more quickly and lower your credit utilization. It's one way to quickly increase your credit score.
5. Ask to become an authorized user
Here's a tip on how to increase a credit score that is not familiar to many people. First, you need a friend or family member with good credit and a relatively high credit limit. Ask them if you can become an authorized user on their credit card account.
This does not mean you'll have access to their card or be able to make purchases on their account. They don't even have to tell you their account number. But if you're named on their card, their account is added to your credit reports, and you can benefit from their higher credit limits.
6. Diversify your credit mix
Suppose you've done all of the above but want to know, how else can I increase my credit score? There's another option that may help. Your credit "mix" (the range of your financial obligations) accounts for about 10% of your credit score.
A good range, including several credit cards, a loan or two, and even a mortgage, is what the credit bureaus prefer to see. If you're young and new to the world of credit, or have a very light mix of financial obligations, you may find it helpful to open another credit card account or take out a loan, as long as you can keep up with the obligations.
You still want to keep credit utilization under 30%, but you're increasing the complexity of your financial portfolio. In some cases, this can increase a credit score by a few points.
7. Use credit cards strategically
There are a few tips to increase a credit score related to your credit card usage. We've already discussed keeping your credit utilization under that magic 30% of your total credit, but are there other ways to increase credit scores? One suggestion is to keep old cards open, even if you're not using them, since credit bureaus consider how long you've had your cards.
Another tip is to pay down high balances first. If possible, pay more than the minimum amount due. In general, this positively impacts your financial health, as it limits the amount of interest you're paying on your credit card debt.
Our tips to increase your credit score can help improve your credit rating in a matter of months. But typically, the fastest way to increase a credit score will be to keep your credit utilization as low as you can get it and always pay your bills on time. Just by doing that, you should see an increase in your credit score within three to four months.
A strong credit score can mean better interest rates on a mortgage or car loan, and in some cases, even lower insurance premiums. If you're ready to financially protect your family with a term life or whole life insurance policy from Ethos, get started with a free quote today.
The information and content provided herein is for informational purposes only, and it is not to be considered legal, tax, investment, or financial advice, recommendation, or endorsement. You should consult with an attorney or other professional to determine what may be best for your individual needs.