How To Increase My Credit Score

This article has been reviewed by licensed insurance industry expert Moshe Fishman.

We all know it’s important to have a good credit score, but what exactly are the benefits of having one? Your credit score determines whether you’re approved for a loan or a credit card, and what the interest rates will be. It also influences things such as your likelihood of being approved for an apartment rental and how much you’ll pay for auto and homeowners insurance. All good reasons why you want to raise your credit score.

Having a high credit score usually translates to paying less money overall for things such as interest, insurance, loans, and even utilities. The good news is that anyone can improve their credit score. Even if your credit score is in the low-to-average range, by following these tips, you can increase your credit score by as much as 100 points in as little as 30 days. 

How are credit scores calculated?

The first step to improving your credit score, sometimes called a FICO score, is to understand how credit scores are calculated. There are three credit bureaus that analyze credit: Experian, Equifax, and TransUnion. In fact, your credit score may vary depending on which credit bureau generates the report. This is because various creditors and lenders don’t necessarily report to all three credit bureaus. 

The credit bureaus take a number of factors into account when determining credit scores. These factors include your payment history, credit utilization ratio, credit mix and age, and how much you owe. Let’s look at each of these factors in more detail.

Payment History

The biggest factor influencing your credit score is how often you pay your bills on time. Late or missing payments will negatively affect your credit score. If you tend to miss payments, sign up to have your bills paid through autopay. 

Credit Utilization Rate

Your credit utilization rate is just what it sounds like: how much you utilize the amount of credit available to you. Your credit utilization rate is the sum of all the balances of your credit card accounts divided by the sum of your cards’ credit limits. It’s the second biggest factor when it comes to calculating your credit score.

Let’s say you have three credit cards with $200 charged on each one and a credit limit of $1000. To calculate your utilization rate, divide the total balance ($600) by your total credit limit ($3000), then multiply by 100. Your credit utilization rate would be 20%. 

Generally speaking, lenders like to see a credit utilization rate of less than 30%. If your rate is higher, you’ll want to pay down your credit balances. Note: If you ask your credit card issuers for a credit limit increase, and it is granted but you don't use it, your credit utilization rate would drop.

Credit Age

Credit age refers to how long you’ve had a line of credit. The longer you’ve had a line of credit, the better it is for your overall credit score. That’s why it can be better to keep a line of credit open rather than closing it, even if you’re not utilizing it. 

Credit Mix

Credit mix refers to the different “mix” of types of credit you’re utilizing. Student loans, car loans, a mortgage, and credit cards all fall under the credit mix. Having a variety of different sources of credit (and paying them on time) is positively viewed by lenders and shows you have a thorough understanding of credit basics. 

Amount Owed

This refers to the amount you owe or the balance on all your lines of credit. Generally, it’s best to pay off the amount owed when paying your credit bills as this shows lenders that you’re a responsible borrower.

How Can I Improve My Credit Score?

Here are some surefire ways to improve your credit score. 

• Pay on time - The quickest and easiest way to increase your credit score is to make payments on time. This is the first thing credit agencies look at when determining credit scores.
• Request credit reports from all three credit bureaus, look for any signs of identity theft or fraud, and check for unpaid balances or lines of credit you may have forgotten about.
• Check your credit utilization rate - Periodically, review your credit utilization rate and be sure to keep it under 30%. People with the highest credit scores typically keep their rate at 7% or lower.
• Keep accounts open - Even if you’re no longer using a line of credit, keep unused accounts open to help establish your credit age. 
• Limit opening new accounts - Limit how often you apply for new accounts.

How Can I Build and Establish Credit?

For people who don’t have many lines of credit or who haven’t had credit for long, you can help your credit age by building and establishing credit. Here are some ways to build your credit. 

Secured Credit Cards

Designed specifically to build credit history, a secured credit card is used the same way as a normal credit card but is backed by a cash deposit. 

Credit-Builder Loan

Just like secured credit cards, credit-builder loans are specifically designed to help people with little to no credit establish and build credit history. Offered through credit unions and smaller banks, it’s imperative that you make your credit-builder loan payments on time. 

Ask for Higher Credit Limits

If you’ve had a credit card for a while, have kept your balance low, and have been making your payments on time, request a credit limit increase from your credit card company. Keeping the balance low on a card with a high credit limit will lower your credit utilization score even more.

Become an Authorized User 

Also known as “credit piggybacking,” you can build your credit by becoming an authorized user on someone else’s credit. Ask a friend or family member with a high credit score if you can be added to their account as an authorized user. You don’t need to use their line of credit to reap the benefits as their history of prompt payments will also be reported on your credit history.

Rent and Utility Payments

Ask your property owner and utility companies if it’s possible for them to report your timely payments to the three credit agencies. Although they’re not a type of credit and therefore don’t normally appear on credit reports, having your history of timely payments on file can help establish good credit.

Credit Mix

Adding to your credit mix will help establish credit. For example, if you only have one type of credit, consider adding several types. If you only have student loans, open a credit card, or apply for a credit-builder loan, and vice versa.

How long does it take before I see credit improvement?

For people with low credit scores who don’t have serious credit issues such as bankruptcies or foreclosures, improving your credit score will take time. The good news is that when your credit score is low, there’s nowhere to go but up. By making your payments on time, keeping a mix of credit, and keeping your credit utilization rate low, your credit scores are bound to go up.