How do I improve my credit score?
When you have a good credit score, you can get better terms and lower interest rates on loan products and credit cards. But it’s not always easy to just boost your credit score overnight. The specific steps that can help you improve your credit score will depend on your unique credit situation. Here are some general steps that you can take to help improve your credit score.
Build your credit file
Opening new accounts that will be reported to the major credit bureaus is an important first step in building your credit file. You can't start laying down a good track record as a borrower until there are accounts in your name, so having at least several open and active credit accounts can be helpful. These could include credit-builder loans or secured cards if you're starting out or have a low score or a rewards credit card with no annual fee if you're trying to improve an established good score. Getting added as an authorized user on someone else's credit card can also help, assuming they use the card responsibly.
Don't miss payments
Your payment history is one of the most important factors in determining your credit scores, and having a long history of on-time payments can help you achieve excellent credit scores. To do this, you'll need to make sure you don't miss loan or credit card payments by more than 29 days (payments that are at least 30 days late can be reported to the credit bureaus and hurt your credit scores). Setting up automatic payments for the minimum amount due can help you avoid missing a payment.
Catch up on past-due accounts
If you're behind on your bills, bringing them current could help. While a late payment can remain on your credit report for up to seven years, having all your accounts current can be good for your scores. Additionally, it stops further late payments from being added to your credit history as well as additional late fees.
Pay down revolving account balances
Even if you're not behind on your bills, having a high balance on revolving credit accounts can lead to a high credit utilization rate and hurt your scores. Revolving accounts include credit cards and lines of credit, and maintaining a low balance on them relative to their credit limits can help you improve your scores. Those with the highest credit scores tend to keep their credit utilization ratio in the low single digits.
Limit how often you apply for new accounts
While you might need to open accounts to build your credit file, you generally want to limit how often you submit credit applications. Each application can lead to a hard inquiry, which might hurt your scores a little, but inquiries can add up and have a compounding effect on your credit scores. Opening a new account will also decrease your average age of accounts, and that could also hurt your scores.
Courtney Shauf is community office manager at F&M Trust
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