If you’re like most people, your credit score is something you don’t think about unless you see it mentioned in a commercial or if a friend brings it up. However, when it comes time to make a major financial move like buying a car, purchasing your first home, or taking out a much-needed loan, it becomes the most important thing in the world.
Increasing your credit score takes time, but it’s certainly an attainable and manageable financial goal that can empower you with financial flexibility down the road. And the best news? It doesn’t take any earth-shattering, ground-breaking changes. A few simple steps and a solid plan can help you increase your credit score in no time.
How to Improve Your Credit Score
Check for discrepancies on your credit report
The number one step for improving your credit score is making sure you’re getting credit for the work you’ve already done. According to a study done by the Federal Trade Commission (FTC), one in four consumers identified errors and discrepancies on their credit report. Out of those with errors, four out of five who addressed discrepancies saw a positive impact to their credit report.
How do you go about checking your report and correcting errors? First, you need to get a copy of your credit report. AnnualCreditReport.com is a website run jointly by the three major reporting bureaus, Equifax, Experian, and TransUnion, and you can get a free copy of your report every year. Get a copy and check it thoroughly for errors. If you find something, immediately dispute it with the respective reporting bureau. And while the bureau is required by federal law to follow up with you, make sure to do your part and ensure the errors get fixed.
Decrease your credit utilization
A large component of your credit score is how much of your available credit you are using. Remember, your credit score is a metric that tells lenders how likely you are to default on a loan within the foreseeable future. If you have access to borrow $30,000 in money and you’re using all $30,000 of it, you’re going to seem like a riskier borrower than someone who has access to that same amount but is only using a few hundred dollars of it.
There are two main ways you can decrease your credit utilization percentage. First, you can increase the amount of money you have access to. One way to do this is to add yourself onto a family member’s credit card account. If your family member doesn’t regularly carry a balance, you should see some benefit. A second way to decrease your credit utilization is to reduce the amount of money you’re borrowing by paying down your debt. If you’re especially bold, you can employ both strategies at the same time.
Pay down your credit debt
Paying down your credit card debt is another way to decrease your credit utilization and increase your credit score. The more debt you have, the greater risk you pose to lenders on paper, which is what matters in credit decisions.
According to the Fair Isaac Corporation (FICO), the company that generates your FICO credit score (the score used in most borrowing decisions), the amount you owe accounts for a whopping 30% of your overall credit score. By reducing what you owe, you can move the needle and increase your credit score.
When you make your payments on time, you’ll also be demonstrating a positive payment history, which, at 35%, is the single largest contributing factor to your FICO credit score.
The Bottom Line
Increasing your credit score takes some time. However, having a good to great credit score gives you the financial flexibility you need to make the financial moves you want to. Even if you don’t have any major moves on the horizon, start the work now so you don’t have to worry about it later. Remember, it doesn’t take major actions to create change. Simple steps and doing the right thing repeatedly can improve your credit score in no time.