5 Ways To Improve Your Credit Score

Do you have poor credit? Or even fair credit that you want to improve? Your personal credit score can impact not just your personal finances, but also your opportunities for small business loans and other forms of financing. Fortunately, there are steps you can take if you have a low personal credit score.

5 Ways To Improve Your Personal Credit Score

We’ve researched the five best ways to increase your personal credit score.

1. Understand your score
2. Check your credit reports to dispute errors
3. Pay your bills on time
4. Keep your debt low
5. Wait it out

Whether you’ve had poor spending habits in the past, or you simply don’t have a large enough credit history to have a good score, you will undeniably benefit from taking steps to improve your score.

Below, we go into depth about everything you can do to ensure that you’re taking the right steps to a positive score.

1. Understand How Credit Scores Work

Your credit score is determined using information about you and your debts gathered by a credit reporting agency. A scoring model is applied to your credit report to calculate your score.

Your credit score is a result of five main factors:

1. Payment history
2. Credit usage
3. Length of credit history
4. Credit mix
5. New sources of credit

Typically speaking, the first two items on this list are the most important while the last three only make up a small part of your score.

• Learn More: Personal Credit Scores Explained

2. Check Your Credit Reports & Dispute Errors

Speaking of credit reports, when was the last time you checked yours?

These reports can help you find ways to improve your credit and might also help you catch any errors that could be impacting your score. The biggest credit reporting agencies — Experian, Equifax, and TransUnion — are required, by law, to provide your credit report on an annual basis.

Use AnnualCreditReport.com to find a copy of your reports, and the FTC website can teach you how to dispute any errors you might find. There are free credit score services that can help as well.

3. Pay Your Bills On Time

Paying or not paying your bills on time will hugely impact your credit score.

Occasional lateness isn’t the end of the world, but anything over 30 days is going to negatively impact your score.

4. Keep Your Debt Low

After timely bill payments, credit usage is going to impact your credit score the most.

In other words, your score is a result of the amount of money you owe compared to the amount of money you can draw from. This usage, also known as credit utilization, is normally expressed as a credit utilization ratio.

This ratio is the percentage of your credit lines that you are currently using. For example: if your credit card has a limit of $500 a month and you have $75 outstanding, your credit utilization ratio is 15%. It’s a good idea to keep your credit utilization ratio at 30% or lower.

That said, many people think that you must keep a credit utilization ratio of 30% by carrying a balance on your credit card to keep your credit score high. This is not true. Carrying a small balance will not hurt your credit, but it also won’t increase your score. If you have the means to do so, paying off your credit card bills entirely will suit your needs just as well.

To keep your debt low, we recommend paying off your largest debt as fast as you can, increasing your credit limits to improve your credit utilization ratio, and avoiding taking on any new debts while working to increase your credit score.

• Related: How To Consolidate Credit Card Debt

5. Wait It Out

As with most things in life, time might heal all wounds. It could just take another month or so before you see change in your credit score.

Unfortunately, bad credit is not something you can fix overnight; you have to commit to a consistent change in your behavior to see a change in your credit score.

On the plus side, negative marks against your credit score (bankruptcies, delinquencies, late payments, etc.) will eventually be taken off your report.

• Learn More: How Long Does It Take To Improve Your Credit Score?

Final Thoughts

We wish you luck on your journey to increasing your credit score! We recommend you check your credit score using a reputable (and free!) service to get started.

Are you looking for tips to improve your business credit score instead? Check out our ultimate guide to improving business credit!

Increase Your Personal Credit Score: FAQs