Tips to Improve Your Credit Score

What is a Credit Score?

A credit score is a three-digit number representing your creditworthiness and your ability to repay your debts. While there are different credit scoring models available, lenders typically use the FICO score model during an application to determine the applicant’s credit risk. Your credit rating is calculated using information from your credit report, focusing on five key factors: payment history, amounts owed, length of your credit history, new credit, and credit mix. Depending on your financial behavior and the information gathered in your credit report, your credit score can range from the lowest score of 300 to the most exceptional rating of 850.

Not only can a credit score influence your ability to qualify for loans and other forms of credit, but it can also help a lender determine the interest rate you are offered. If you have a poor credit history, you may be searching for tips to improve your credit score to access the best loan options possible. Before you start working on your credit, you should know more about how credit scores work and why this number is an important part of many financial decisions.

Whichever financial product you’re interested in, your credit score is often a crucial factor during the application process since it helps lenders determine how responsible you are as a borrower. If you have a FICO credit score in the “good” range of 670-739 or above, you’ll likely have access to lower interest rates and increase your chances of getting loan approval.

Some employers may conduct credit checks during hiring decisions, so having a positive credit history may increase your likelihood of getting approved for the job. If you have a low credit score, know that many credit-building tips are available that can help you boost your credit to a more favorable position!

Start your journey to increase your credit score by following some efficient methods mentioned below. If you need emergency cash but have a bad credit score, you can apply for auto title loans online to get the funds you need to get back on your feet.¹

What are the Fastest Ways to Improve Your Credit Score?

While there are many ways to improve your credit score, it’s important to note that this process isn’t instantaneous. The amount of time it takes to boost a credit score will vary by person and may depend on the amount of effort they put in. But, you can generally expect to see some changes within a few months or so if you prioritize improving your credit score, stay consistent, and follow these methods:

Pay On Time

The first tip that most financial experts recommend to increase your credit score is to simply pay your debts on time. Whether you have a monthly auto loan installment or credit card bills due, you must remain consistent with your payment schedules to establish a record of responsible financial behavior. If you have a history of late or missed payments, that will negatively affect your credit score and can stay on your credit report for up to seven years. To avoid that consequence, you can try setting up automatic installments, creating reminders on your calendar, or using a budgeting app on your smartphone that helps you keep track of your monthly due dates.

Get a Secured Credit Card

A person’s ability to handle their debt obligations is a significant factor lenders will review during credit applications. If you don’t have an established credit history, you may find it difficult to qualify for different types of loans, and you will likely have fewer credit card options. A secured credit card allows you to build a positive payment history through responsible usage and demonstrates to a credit card issuer that you’re capable of managing credit. Instead of obtaining available credit solely based on your creditworthiness, you can pay a cash deposit upfront to get approved for a secured credit card. The cash deposit is the collateral for the money you borrow, so you don’t need to have a strong credit score to get approved for a secured credit card.

Similar to any other credit card, though, you can harm your credit score if you fail to make a minimum payment by the due date. By making the necessary payments on time, you can boost your credit score and potentially increase the likelihood of getting approved for unsecured debts in the future.

Become an Authorized User

If you know someone with a good credit history and who is financially responsible, you can ask to be added as an authorized user on their credit card account. Although you’ll get a credit card connected to the primary cardholder’s account, you won’t be responsible for paying the monthly bills issued by the provider. If this person is a responsible borrower, their payment behavior will positively affect your credit score.

Manage Your Credit Utilization

Keeping your credit utilization ratio low is possible if you focus and follow a few recommended strategies. One of the most straightforward ways to accomplish this goal is to reduce your spending as much as you can. In the meantime, you should work on paying down your credit card balances if you have the means to do so. Additionally, if you request a limit increase on one of your credit cards, that can boost your total borrowing power, which can positively impact your score as long as you don’t use all of it!

Having a practical budget is the key to managing your credit utilization ratio. You won’t have sufficient funds to pay down your cards if you waste too much money on unnecessary expenses! It’s important to live within your means as much as possible. Research different budget plans online, like the 50/30/20 rule, to help you stay on track with your financial goals and keep your credit utilization at a low level.

What are 3 Things That Will Raise Your Credit Score Over Time?

The tips mentioned above are some of the fastest ways to improve your credit score. But you shouldn’t stop working on your credit, even after you reach an ideal score.

Take a look at 3 things you can do to raise your credit over time and keep your score strong:

Limiting New Credit Applications

Applying for new credit cards is tempting if you want to access different rewards or you need more money for urgent expenses. However, opening a lot of new credit cards at once is risky, since issuers typically run hard inquiries on your credit report during an application. A hard inquiry may only knock a few points off your credit score, but it stays on your credit report for up to two years. While there is no set number of hard inquiries you should have at any given time on your credit report, try to keep the number as low as possible.

You may find it easier to manage just one or two credit cards at once. Additionally, if you carry high balances across multiple cards, you will increase your overall credit utilization ratio, which can decrease your score.

Maintaining Old Accounts

When working on improving your credit history, you should try to keep your old credit accounts open even if you don’t use them frequently. The average age of your credit accounts is known as your credit age, which is one of the five factors that impact your credit score. Keeping your older, well-managed accounts open can actually help your credit score because the age of the account contributes to the overall average. Lenders typically want to see that you have a longer credit history during applications.

There are a few scenarios where closing a credit account may be appropriate, like if the card has a significant annual fee that you can’t afford or if you have detected a lot of fraudulent activity on the card. However, if you’re not dealing with any of these issues, it’s recommended that you keep your credit account open to maintain your average credit age and hopefully improve your score over time.

Diversifying Your Credit Mix

It’s important to show that you can manage different types of credit since it proves how well you handle your debt obligations. Whether you have a mixture of mortgage accounts, installment loans, credit cards, or other types of credit, a clean record of responsible payments on different types of accounts can be beneficial.

Speak with a financial advisor today if you have questions about improving your credit. An expert in this field may give you additional tips to boost your credit score that can give you the confidence you need to start working on your financial history.

Is 650 a Good Credit Score?

As mentioned previously, a credit score ranging between 670 and 739 is considered to be “good” credit under the FICO credit score system. If you currently have a 650 FICO credit score, you have a “fair” score, and your loan or credit card options can be limited. Thankfully, there are various credit-building tips you can use to improve your current score, such as:

Taking Out a Credit-Builder Loan
Monitoring Your Credit Report Consistently and Disputing Errors
Only Applying for Credit When You Need It
Paying Off Your Credit Card Balances as Often as Possible

Can I Get a 720 Credit Score in 6 Months?

Achieving a 720 credit score in 6 months is possible, but it will ultimately depend on your current credit standing and your financial habits. For example, if you focus on paying your bills on time and reducing your credit card balances or other debts, you can see an upward trend in your credit report.

You should be consistently reviewing your credit report and checking for errors or detrimental factors. Finding inaccurate data on your credit report is possible, and it can affect your credit score and harm your chances of getting approved for financial products in the future. Errors can range from inaccurately reported late payments to misspelled last names or addresses. If you check your credit report regularly, you can potentially increase your credit score by disputing any errors you find.

If your credit report shows overdue payments, outstanding balances, accounts in collections, or charge-offs, it’s important to take the appropriate steps to correct those issues if possible. Don’t forget to keep your credit utilization rate low and avoid applying for a lot of new credit cards at once to potentially increase your score over time. If you remain consistent with the recommended credit-building strategies and you already have a decent credit score, you may see notable changes within a few months.

Does Paying Off Debt Lower Your Credit Score?

Generally, paying off your debt is one of the smartest things you can do to improve your credit score. However, if you completely pay off your only credit card and close the account, that can negatively affect your credit score by changing the diversity of your credit mix. Although it’s a good idea to pay off your credit card debt, you shouldn’t close the account entirely after the balance has been reduced to zero. Whether you plan on using that credit card again or not, you want to ensure you preserve the length of your credit history by keeping your credit account open.

When you’re in debt, take note of the best time to repay your debt obligations and decide which payments should require your immediate attention. If you have trouble determining how to efficiently pay off your debt, you can consult with a non-profit credit counselor by looking at different online resources, like the Financial Counseling Association of America (FCAA) or the National Foundation for Credit Counseling (NFCC).

What are Some Credit Building Tips to Avoid Unnecessary Debt?

Many Americans have dealt with debt at some point in their lives. Whether you needed to get cash through a payday loan or to finance a new car with an auto loan, you may have taken on some form of debt in the past. However, there are many instances where getting into debt is unnecessary, and it might be challenging for you to cover those payments if you are already struggling financially. If you want to improve your credit score, it’s best that you avoid wasting money and focus on the aforementioned credit-building tips that will help you reach your goal.

Check out some of the most effective strategies available that will let you stay away from unnecessary debt:

Set Up an Emergency Fund with Three to Six Months’ Worth of Expenses
Limit Non-Essential Spending
Avoid Using Credit Cards When You Can’t Afford an Expense
Don’t Lose Track of Your Monthly Bills
Only Take Out Loans When You Really Need Them
Take Advantage of Savings on Daily Necessities
Stay Consistent with Your Budget Plan

Boosting your credit score to a healthier standing can be easier if you avoid unnecessary debt. Remember that improving your finances will not happen overnight, but you can see your credit score change over time if you use the appropriate methods to build a more positive credit history!