How to Increase Your Credit Score

If you live in the U.S., whether you like it or not, your credit score can make a huge difference (for good or bad) in your finances and beyond. Your credit score could even impact your love life.

Your credit score tells lenders (and others) how reliable you are regarding paying your debts (and possibly how reliable you may be in other situations). As a result, a good credit score gives you access to more funds at a lower cost than a bad score.

It may let you rent a better home, get an insurance policy from a better insurer, and possibly convince a potential romantic interest you’re worth getting to know.

Most legitimate ways to improve your credit score can take years to implement. However, there are three legitimate ways you can quickly increase your credit score, which you may be able to do with just a little knowledge (provided here) and a little effort.

Before we share tips to improve your credit score, let’s start with a review of the reasons why a poor credit score is detrimental to your financial health.

The Many Ways Bad Credit Hurts You

According to Credit.com, there are 11 negative consequences you could suffer if your credit score is bad:

1. Banks may decline your mortgage application, so you won’t be able to buy a home
2. Lenders may decline your car-loan applications, so you won’t be able to buy the car you want
3. If your mortgage or other loan application is approved, it will most likely be with a punishingly high-interest rate
4. Credit card issuers may not approve your application, or they may offer you a card with a lower limit and a higher interest rate
5. Utilities may require you to pay a significant security deposit to let you open an account
6. Cell phone carriers may decline your application or charge you a significant deposit
7. Cable and streaming services may decline your application(s)
8. Landlords may decline to lease their property to you or charge you higher rent and/or security deposits
9. Insurers may decline to issue you a policy or charge you higher premiums
10. Employers may (with your written permission) look at your credit history to decide if they’re willing to hire you; if they disclose it ahead of time, your current employer may check your credit, and if they find significant derogatory events, they may let you go
11. Potential romantic partners may decide not to develop a relationship with you if you don’t handle money well.

What Impacts Your Credit Score

The most famous provider of credit scores is Fair Isaac Corporation (FICO). Their scoring model ranges from 300 to 850 and is determined by the following five factors (percentage weight in parentheses):

1. Payment History (35%): Do you make payments on time? If you don’t, lenders will see you as a high-risk borrower.
2. Amounts Owed (30%): How much of your available credit do you use? The more you owe relative to your available credit, the more lenders see you as overextended and at risk of default.
3. Length of Credit History (15%): How long have you been handling credit (oldest credit line age, newest credit line age, average age of credit lines, etc.)? If your credit history is short or non-existent, lenders don’t know yet if you’re a good credit risk or a bad one.
4. Credit Mix (10%): Do you manage well both revolving credit lines (e.g., credit cards) and installment loans (e.g., mortgages, auto loans, etc.)? If you have only one type, lenders offering the other type don’t know if you’ll manage what you owe them as well.
5. New Credit (10%): How many “hard” credit inquiries have you had in the past 12 months (only the first year affects your score, though inquiries stay on your record for two years)? How many new credit lines have you opened in the past two years? If you open multiple credit lines in a short period of time, lenders see that as a possible signal that you’re struggling and may not be able to pay back what you borrow.

Five Ways to Boost Your Credit Score in General

From the above list, it’s clear that the following tips are all helpful in boosting your credit score.

1. Start Making (or Continue to Make) Timely Payments

If you were late making payments (or simply didn’t pay), that will have a major negative impact on your credit score for seven years!

Bankruptcy can stay on your record for up to 10 years.

The impact on your credit score can be greater if:

• Your payment is late for longer (30 days, 60 days, 90 days, or more)
• You missed more than one payment
• Your late payments went to collections

The good thing is that the credit score impact gradually reduces once you’re making on-time payments again. However, that’s still a long-term play.

Jen Swindler, CFP, AFC, Senior Wealth Manager at Vincere Wealth Management, says, ”Always, always, pay your bills on time. This is the number one factor impacting your score. To make sure this happens, I advise my clients to ensure autopay is set up on every credit card and loan for at least the minimum payment, but ideally the full balance.”

2. Reduce How Much of Your Available Credit You Use

This is the quickest way to improve your credit score, and below we’ll cover several ways to do so. Meanwhile, to understand how you can do it, here are the 5 elements considered under this factor:

1. The total amount you owe across all accounts
2. How what you owe is split between different account types
3. How many of your credit lines have balances
4. Your credit utilization ratio on revolving accounts, i.e., the total you owe on all credit cards divided by the total credit lines across all your cards 
5. How much you still owe on installment loans (e.g., mortgages, car loans, signature loans, etc.) vs. the original amounts you originally borrowed

3. Keep Managing Credit Lines Over Time

Since the length of your credit history is the third-highest-impact factor, it’s worth considering. However, you can’t speed things up. Each year, the length of your credit history can only increase by one year.

Having said that, opening a new credit line could ding you here, because it reduces the average age of your credit lines, and restarts the clock on your newest credit line age.

4. Use a Mix of Credit Line Types

If you’ve only ever had installment loans, opening a new credit card account (or vice versa) can help with this factor. However, it will impact the previous (higher-weight) factor and the next one, at least temporarily, so it could reduce your score at least for a while.

5. Space Out Opening New Credit Lines 

Opening new credit accounts judiciously, over time, can improve your score over the long term, but can hurt your score in the short term. Note, however, that multiple credit inquiries when shopping for a single new line, whether it’s a credit card, a car loan, or a mortgage, are usually counted as one so it’s worth looking for the best offer.

The 3 Fastest (and Legitimate) Ways to Boost Your Credit Score

Unlike the tips shared above that can take time to produce results, sometimes you need to boost your credit score in a hurry. If that’s the situation you’re in, here are the fastest legitimate ways to increase your credit score.

1. Removing False or Old Late-Payment Reports

Since 35% of your credit score is based on your payment history, the fastest way to improve your credit score may be to look to see if there are any late payments on your credit report that never happened or that happened so long ago that they shouldn’t still be there.

If you find any of these, reach out to the lender(s) involved and ask them to remove those from your credit report. If they decline or don’t answer, file a dispute with the credit reporting bureau(s). The lender will then have a set time to respond and prove their report. If they can’t or don’t, the bureaus have to remove the reported late payment, which will immediately boost your credit score significantly.

2. Pay Down Your Balances Strategically

Here, there are two parts.

First, if you can, pay down your balances and reduce how much you charge on your credit cards. Especially before applying for a mortgage, ask the lending officer for advice on which cards to pay off, which to pay down, and by how much.

Jorey Bernstein, Executive Director, Wealth Manager and Founder, Bernstein Investment Consultants, recalls how he helped a client improve her score by paying down debt, “In 2020, I helped a client improve her low credit score. First, we created a budget to reduce unnecessary spending, enabling her to pay off debt. That reduced her credit utilization ratio. Plus, once she paid off the debt, she was able to divert to other priorities the money that previously went to the monthly payments. I also had her open a secured credit card to rebuild her credit history. She stayed on track by regularly tracking her credit score using the Credit Karma app. By 2021, her FICO score was 760.”

Note that paying all your cards off in full, bringing your credit utilization ratio to zero, may actually ding your score by 4-5 points. However, you want to make sure your ratio is as low as you can get it (while remaining above zero). Many “experts” say the threshold is 30%, but in reality, there’s no magic line in the sand. Getting your ratio to 19% is better than 29%, 9% is better than 19%, and 1% is best.

The second part is if you can’t afford to reduce your credit card debt by much, do one of two things. Either change how often and when you send those payments you can afford, or take out an installment loan to consolidate all your credit card balances into one non-revolving debt.

Let’s start with the consolidation loan.

Note that you should usually only do this if (a) you’re disciplined enough to not start running your credit card balances back up in addition to the new loan, (b) the interest rate on the consolidation loan is lower than what you’re paying on your credit cards, and (c) the term of your consolidation loan is long enough that your monthly payment is less than the total you’ve been paying on all your cards, so you know you can keep up with it.

If you do this, do not close your credit card accounts. That will reduce your available credit and increase your utilization ratio! If needed to avoid running your balances up again, keep those cards in a drawer (or you could literally freeze them in a block of ice to make it that much more difficult to use them again).

Jen Swindler agrees, “Don’t close old cards. Your overall credit limit available across all cards will be reduced, increasing your utilization ratio. Closing old cards can also negatively impact your length of credit history. If you have a card with a high annual fee that isn’t benefiting you, downgrade that card to a free version rather than closing it.”

The other option, if a consolidation loan doesn’t make sense, is to adjust your credit card payment schedule.

Here’s how that works…

Since your credit utilization ratio is based on balances reported by your card issuers, and they report monthly, making payments just before the date they report your balance will boost your credit score, potentially by a lot (up to 255 points if you go from 100% ratio to 1% ratio!).

To do this effectively, contact each of your card issuers and ask when they report your balance. Then, send your monthly payments 2-3 days before each such deadline, even if it’s before your due dates.

Another option, if you haven’t gotten yourself into a deep credit-card-debt hole, is to use your rewards card to get cash back and then send a payment the following day. If this is too unwieldy, send payments weekly or twice a month for the full balance owed to that point. This could be based on when you get paid, whether weekly, bi-weekly, or semi-monthly.

3. Increase Your Available Credit

Since your credit utilization ratio is calculated by dividing how much you owe by how much you could borrow, increasing your credit limit(s) increases the latter number and thus reduces the ratio.

For example, say your total credit line (across all your cards) is $25k, and your total balance across all cards is $5k; your ratio is $5k/$25k, or 20%. If you can get one or more of your limits increased such that your new total is $50k if you don’t add new charges, your ratio just dropped to 10% ($5k/$50k).

Many card issuers will let you ask for a credit line increase through their website and give you an immediate answer without doing a “hard inquiry” which would ding your credit score. Typically, if they approve an increase, they won’t approve another one until at least six months later, so you can put a reminder in your calendar to ask again six months later.

Jen Swindler agrees here, too, “Regularly request credit-limit increases. Most credit card providers let you request a higher limit every 6-12 months. Because your credit ratio is a major factor in determining your credit score, higher limits often provide a quick boost to your credit score. However, if you’re prone to maxing out credit cards, this might not be ideal for your situation.

Another way to do this is to periodically (no more than once a year) open a new card. This will ding your score a bit (it requires a hard credit inquiry, adds a new account, and reduces your average credit line “age,” but adds to your available credit, your number of accounts, and potentially your credit mix.

If you open cards that have a 0% teaser rate available for a long time (some may be as long as 12-18 months), it may make sense to pay the upfront fees to move your balance to the new card and take advantage of the long period with no interest to have every dollar you send to the issuer reduce your balance owed (rather than cover accrued interest).

However, if the rate goes up too much at the end of the teaser period, you’ll need to either have the balance paid off in full by then or open a new 0%-intro-rate card at that time and move the remaining balance there.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

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Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.