Nothing stings quite like learning your credit score is low. And not just low, but even lower than the scores highlighted in those louder-than-necessary commercials about credit counseling.
Unfortunately, there’s no magic wand that’ll elevate your score to a number you’re proud of. However, there are things you can do to take charge of your situation. Consider these five tips as you put in the work to boost your credit score.
1. Make Sure You’ve Got the Right Credit Mix
Whether you’re digital or analog, it’s time to review what types of accounts you have in your name. For credit reporting, the bureaus pay attention to two types of credit: installment credit and revolving credit.
Installment credit lines are auto or home loans with a fixed payment for a fixed number of years. Revolving credit lines are products like credit cards or home equity lines of credit. While installment credit accounts go down each month as you pay your loan, revolving credit changes based on your activity. The two make up your credit mix, which accounts for 10% of your credit score.
If you only have installment loans, it may be harming your credit mix. Consider whether a revolving credit account would fit in your financial management plan. If your score is too low to qualify for an entry-level card, look into a credit builder card. These types of cards are often easier to access for people with low or no credit. They can also provide a much-needed boost to your credit score.
2. Know Your History and Confirm It
Did you know that you can pull your full credit report for free? In the past, you could only access your full credit report for free every 12 months. However, due to the COVID-19 pandemic, credit reporting bureaus have allowed you to do so weekly.
If you truly want to improve your credit score, you have to see what the bureaus see. Checking your report has no impact on your credit score, so don’t worry about potentially lowering it further.
Once you access your full credit report, don’t be surprised that there isn’t a score. Providing a score is not the purpose of these reports. Your report will showcase every financial obligation you’ve made and how you’ve delivered for your entire life. Did you open up a store card at the mall and forget to pay for the jeans you bought? That is on your credit report and is likely impacting your score.
Review your report for inaccuracies and, if you notice an error, take note of it. Once you’ve completed this task, file a dispute with the credit reporting company, as well as the creditor in question. In a few months, these updates will show on your reports, likely improving your score.
3. Pay Attention to Your Credit Utilization Rate
Contributing a whopping 30% toward your credit report, your credit utilization rate is no joking matter. Credit cards and their digital counterparts are often the preferred way for many to pay. But thanks to their ease of use, balances tend to get out of hand.
If your credit score is already lower than you’d like, you may already be familiar with your credit card limit. The straightforward solution is to pay down your balance to the ideal utilization rate of 30% or lower. If this isn’t an option for you, consider making a phone call to your credit card provider to increase your limit.
Once you’re on the phone, tell the robo-operator that you’d like the retention department, or simply say “cancel.” From there, you’re usually transferred to the most empowered associates. Let them know that you’re considering a large purchase and ask if a higher limit is possible.
If you have a solid payment history, your chances are good. Make sure the service reps have the most up-to-date income data on file so they can make the right call. Remember, don’t just add to your balance if you increase the limit; the point is to get your utilization rate down.
4. Get Creative, and Consistent, With Payments
If remembering payments has been a challenge for you, now is the time to set up automatic minimum payments. This tip can help you avoid slip-ups while moving the minimal amount out of your checking account. Log onto your accounts that offer this option, set them up, and you’ll never be late again.
Want to get creative? Consider the timing of when you pay your revolving credit accounts. Your account has a payment date and a statement end date. The statement end date indicates when the total balance is closed for that statement period. That balance is also what’s communicated to the reporting bureaus.
If you have it in your budget, consider paying your bill in full by the statement end date. This strategy would make it so the lowest possible balance is reported to the bureaus, showing a smaller utilization rate. Use this approach each month, and you’ll see your score rise consistently.
5. Resist the Urge to Open New Accounts Prematurely
Has it come to your attention that you need more diversification in your financial life? Before you hit submit on new credit applications, take a moment. Each new credit card application typically triggers a hard pull credit check, and it may do more harm than good.
A hard pull allows the potential lender to see your full credit report. This hard pull is helpful to determine your creditworthiness, but it shows up as an inquiry on your profile.
Too many inquiries could flag you as a potential risk to lenders. Avoid damaging your rate and your chances of approval by only applying for new credit when you need it. Research potential lenders and their requirements so you only apply for credit you’re confident you’ll get.
Focus on the accounts you have before you pursue new credit. If you’ve been dissatisfied with your credit card’s terms, try to renegotiate your limit and rate. However, if you still want to shop for a new line of credit, consider your timing. Hard inquiries typically stop showing on your report after two years. Keep that in mind, and you’ll avoid unnecessary dings to your score.
Concentrating on improving your credit score is commendable — not everyone is up for the challenge. Dial in on the factors that make up your score and you can expect to see improvements within months. Typically, lenders report account information to the bureaus every month to 45 days. With your focused and strategic effort, your score will be in a better place. And you’ll be a more desirable borrower, with an enviable score to match.
