If you want to improve your credit score, start by finding and disputing errors on your credit report. These can range from inaccurate account details to incorrect payment history to incorrect personal information.
The first step is to obtain a copy of your credit report. This can be requested once a year for free through the three main credit bureaus: Experian, Equifax, and TransUnion. Once you have your report, it’s time to look for errors. Carefully review the information on each of your accounts, making sure all of the details are accurate and up to date. If you find any errors, the next step is to dispute them.
You can dispute errors directly with the three credit bureaus. The Consumer Financial Protection Bureau has contact info and instructions on how to report
5 Tips to Maintain a Strong Credit Score
Once you’ve built a good credit score, you’re not out of the woods. It’ll take work to maintain this score and keep it in good standing.
1. Always Pay On Time
Timely payment on debts, loans, and accounts is the most important factor in your credit score. Consider setting up automatic payments when possible to ensure timely payment, as any late payments can cause your credit score to plummet as much as 180 points.
2. Keep Your Oldest Accounts Open
Many consumers unknowingly close credit card accounts without realizing the effect that can have on your score. Just because you don’t use that old student credit card you had in college or your very first rewards card you got, doesn’t mean you should close them. Closing your oldest accounts can shorten your overall credit history and hurt your score.
3. Track Your Credit Utilization
Let’s swing back to credit utilization. As a reminder, maintaining a credit utilization ratio below 30% helps you avoid a negative impact on your credit score. Maxing out your cards might get what you want in purchases, but it’ll tank your score, so make sure you’re paying off your cards in full every month, if possible.
4. Avoid Co-Signing Agreements
When you co-sign an agreement, you’re taking on the responsibility to pay the debt if the other person is unable to make payments. If the other person fails to pay what they owe, that can have an impact on your credit score. So, only co-sign when you know the original borrower will continue making payments.
5. Monitor Your Credit
Regularly checking your credit score to ensure that all information reported is accurate is important. Checking your own credit will not negatively impact your score and you can be alerted to any unexpected changes in your credit profile.
How Long Does It Take to Improve Credit Score
The amount of time it takes to improve a credit score depends on a variety of factors and can vary from person to person. Generally, it can take a month to several months or longer to improve a credit score by a significant amount.
For individuals with serious financial difficulties, it could take several years to improve their credit scores significantly. However, by taking steps to improve one's credit score, like those listed above, it is possible to realize small positive changes within a few months.
It’s important to remember that improving a credit score is a process, often a long process, and it cannot be achieved overnight. Patience and diligent effort will be key in improving a credit score over time.
Decoding Your Credit Score
The term credit score is generally easy to understand, but once you start digging, there’s a lot to understand behind the seemingly simple term.
How Your Credit Score is Calculated
Your credit score is designed to show how reliable you are as a borrower, so it tracks five factors:
- Payment history: 35%.
- Amounts owed: 30%.
- Credit history: 15%.
- Credit mix: 10%.
- New credit: 10%.
Credit Score Ranges
Taking the factors measured above, the credit bureaus calculate a score ranging from 300 - 850. The closer to 300, the worse your score, and the closer to 850, the better your score. Here’s how the numbers break down:
- 300 - 499 = Very poor.
- 500 - 600 = Poor.
- 601 - 660 = Fair.
- 661 - 780 = Good.
- 781 - 850 = Exceptional.
Checking Your Credit Score
Checking your credit score has gotten incredibly easy over the last few years. Now, you can sign-up for free credit monitoring services like Credit Karma or Credit Wise, which show you your updated score each week or month.
Additionally, you can go to annualcreditreport.com each year to get a full report from all three bureaus.
Why Your Credit Score is Important
Having a good credit score is essential to living an economically secure life. It can affect a person’s ability to obtain a loan, set up utilities, get into an apartment, obtain employment, and even open up a checking account. It serves as proof of a person's financial capability.
Here are a few reasons why your credit score is important:
- Lenders use your credit score to determine if they will lend you money or offer you a loan. In order to get a loan or line of credit with favorable terms, it’s important to have a good credit score.
- Your credit score can affect the cost of your insurance premiums. Insurance companies use credit scores to determine whether or not to insure you and how much your premiums will be.
- A strong credit score can also help you obtain a lower interest rate on major purchases like new homes or vehicles, saving you money in the long run.
- It’s not just lenders who look at credit scores. Your credit score is often used by employers to determine whether or not you’re a reliable and trustworthy applicant.
- Your credit score is a reflection of your financial management and responsibility. A good score can open many doors.
Real-Life Success Stories: How These Individuals Improved Their Credit Score
Christopher Murray’s Credit Journey
Christopher Murray is a professional personal finance writer at Finimpact
I won’t lie, I didn’t think about my credit score once before I got my first writing gig in the personal finance space. So, imagine my surprise when I checked my score for the first time while writing an article and it was in the low 400s.
At that point, years ago, as a recent college grad, I was still living with my parents and was desperate to get a place of my own. A 400 credit score wasn’t going to cut it, a lesson I learned the hard way after being denied for the first three apartments I applied for.
Thankfully, and somewhat uniquely, I was learning the skills I needed to improve my personal credit while working my 9-5 as a personal finance writer. The first few steps I took straight out of the credit repair gate were:
- Signing up for Credit Wise. I was already a Capital One member, so I chose the easy path and took the 30 seconds needed to activate Credit Wise, and started getting weekly updates to my score. AND Capital One explains why your score changes in an easy-to-understand way.
- Got a secured credit card. I’ll admit, I was anxious to get a credit card. I had ignored all the student credit card offers I had gotten in college because I knew I wasn’t the best at saying no to impulse purchases. But, a secured credit card held me accountable. First of all, I had to cough up $200 to start a credit line, which made me very aware of how much I was spending. After just a few months of on-time payments, my credit card lender (again, I’m a big fan of Capital One), bumped me up to a non-secured card I still use to this day. Plus, my score jumped significantly.
- Started paying my student loans early. The reason I didn’t have a good score was that I had never had any sort of account that reported payments to the credit bureaus, so there was nothing for them to base my score on. Student loan accounts count towards your score, so on-time payments help build your score. I decided to tackle them before my grace period ended, giving me a new positive account on my score.
It took me about six months to jump my score enough to qualify as having good credit. It was simple, really. By adding a few new accounts and keeping up with my payments, my score ticked up little by little.
Others Who Have Improved Their Scores
I’m far from the only one who has struggled with credit. Sometimes, things we don’t expect have an unexpected effect on our scores. Matt Schmidt, CEO of Diabetes Life Solutions, told Business Insider that he decided to pay off his student loan debt in full in preparation for buying his first home. He explained:
“My student loan was my only type of 'installment' debt. Even though I paid off my debt, FICO penalized me for not having installment debt.”
In response to his paid-off loan, his score dropped 40 - 50 points.
James Garvey, CEO of Self Lender, also told Business Insider of his unexpected drop in score, explaining how he and his wife had decided to take a honeymoon in Argentina, so he set up autopay on all of the bills they’d have to pay while they were gone. I’m betting you can see where this is going…
Turns out, not all of these bills were fully switched to autopay, leaving a credit card bill unpaid for a few months. Garvey commented:
“As a result, my credit score was damaged for years. After this experience, I founded a company to help people responsibly build credit and save money, Self Lender.”
Most of us have struggled with understanding our credit scores at some point. Thankfully, fixing it doesn’t have to be difficult. With a few calculated moves, you too can up your score, and have something to brag about at parties.
Improving your credit score takes effort, dedication, and patience. While there are no magic formulas that can instantly improve your score, following the steps outlined above can help to improve your overall financial health, and increase your credit score over time.
If you need professional guidance, consider working with a credit counseling service, financial advisor, or credit repair company. Having a good credit score puts you in the driver’s seat when it comes to dealing with lenders, and gives you more access to excellent credit loans with the best rates and terms. Taking the time to learn and understand the basics of credit health and of credit scoring, and taking proactive steps to improve your score, can put you in great financial shape.