Tips to Improve Your Credit Score

A scale with the arm pointing towards an excellent credit score
Photo by Olivier Le Moal from Getty Images

Building and maintaining your credit score is more important than ever. Having a bad credit score will cost you money. Trying to figure out how to improve a mediocre or poor credit score can be daunting. Many people do not know where to start or feel like there is nothing to be done. A better score is within reach. By trying out these simple tips, you can be on the way to improve your credit score.

Know Your Credit File

One common mistake that people make is not checking their credit files. You can make all of your payments on time, avoid excessive credit inquiries, and still see your credit score drop. The two biggest reasons why you should regularly check your credit file are to review and correct mistakes and to watch for fraud.

Did you know that even a misspelled name can lower your credit score? You can get a copy of your credit report for free. Look carefully at all the accounts listed to make sure that the information is correct. You can file a dispute if you see a mistake or if you think there is fraudulent activity.

Make Payments and Stay in Contact

Making your credit card and billing payments on time every month is the best way to maintain and build credit. If you forget a payment, you could see a dip in your credit score. The more ‘late’ or ‘missed’ payments you accumulate, the larger the credit score dip and the harder it is to bring your score back up. If you happen to be dealing with financial difficulties, you can minimize the negative impact by calling your creditors—you may be able to work out a payment plan.

Know What Kind of Debt You Have

Open debts can continue to hurt your credit score each billing cycle. You may be able to call the creditors and work out a repayment plan. But other debts might have already gone to collections. Once the debt shows it is charged off, you can actually hurt your credit score more by paying it. This is because making a payment reopens the debt file and makes it active again.

Credit Cards Can Impact Your Score

When you apply for credit, the company issuing credit will perform a hard inquiry on your credit file. If you have too many of these within a short period of time, it can negatively impact your score. It is important to track the number of inquiries on your file. If you have not had many inquiries and are looking to build back your score, consider opening a line of credit. You can make small purchases and follow up with regular, on-time payments. For best results, keep your credit utilization rate under 30%.

It Takes Time

Building new credit or rebuilding a tarnished score takes time. Certain factors like repossession or bankruptcy can slow the process down considerably. Your first and most important step is to know your credit history and review your file regularly. By staying vigilant and committing to responsible bill payment, you can achieve a better credit score that will unlock opportunities for you.