Did you just miss out on your dream apartment because your credit score was too low? Were you angry and wondering what a credit score even is? That pesky number chosen by the credit gods has lots of power: It can keep you from securing a mortgage, renting an apartment, or even getting a job. Your credit can actually have a huge impact on your life!
If you want to have a credit score that unlocks jobs instead of making car dealers and bankers laugh in your face, here are five tips for boosting credit scores. This way, you can worry less about it and more about paying off those pesky student loans that just won't go away.
5 Ways To Improve Your Credit Score Table of Contents
Understand What Goes into Credit Scores
The first step to getting a credit score that gets you the stuff you want is understanding what goes into it. Credit scores are calculated using a variety of factors, and they are also calculated not just by one credit god on high but by several separate credit reporting bureaus. Your credit score can actually be different at each of the individual credit bureaus (as if the scores weren't already confusing enough!). However, despite the different results that each bureau might get when calculating your score (which is usually due to the fact that different bureaus weight different factors differently in the calculation), basically, all credit scores are calculated using the following factors:
- Payment history
- Age of credit
- Amounts owed
- Percentage of credit used
- Mix of types of credit
- The number of credit checks that have been done
Make On-Time Payments on All of Your Credit Cards and Loans
If you carry a balance on your credit card—because, let's face it, isn't the whole point of using your card to buy big expensive things you just don't have the cash for?—it is essential to pay the credit card bill for that card on time.
Credit scores are significantly lowered if you miss payments, whether you just forget or just don't have the cash to pay the credit card company. So, even if you can only squeeze the littlest amount out of your monthly budget to pay the minimum payment due and not the entire balance, it is important never to miss a payment.
Also, don't forget that credit card payments are not the only payments considered when calculating credit scores—even though it sounds like they should be! It's also hugely important to make loan payments on time, whether that loan is for your car, your house, or simply a personal loan you took out because you needed some more funds to do something big.
Being timely about paying the money you owe isn't only the right, grown-up thing to do, it proves you're trustworthy and reliable when it comes to paying back borrowed money. Showing you're an adult that banks can rely on boosts your score and makes it more likely that other lenders will let you borrow more money in the future. This is an opportunity you want to lock down for yourself!
Don't Apply for Too Many Credit Cards or Lines of Credit
It might be tempting to apply for many credit cards or lines of credit at once, because who doesn't want access to tons of money that they never had before? Also, have a ginormous amount of available credit can lower the percentage of the credit you're using. However, this plan can backfire because each time a lender does an official credit check to see your credit report, it is recorded on your report—then your score is lowered. It's kind of a nasty trick and a Catch-22.
Credit checks only stay on credit reports for a period of a few months, so it's okay to apply for one or two lines of credit. More than that will make your score suck. And a score that sucks that will outweigh any benefits you'd get from increasing your available credit.
Pay Off Your Credit Cards and Loans as Quickly as Possible
It's important to pay your credit card bills on time, every time, even if you can only make the minimum payment. However, ideally, you wouldn't carry a balance on any credit card, and you'd keep the amount of credit you owe at zero (that would be nice, right?). If you've already used credit to pay for things and carry a balance on your card (or you have an outstanding loan balance), try to work hard to pay these balances off as fast as you can. The lower your balances, the higher your score.
Keep Balances Low and Don't Close Unused Accounts
Low balances are key to making sure the percentage of credit you've used in relation to what's available to you is low. This is like the cheat code to ensuring your credit scores are high.
Say you're able to not use your cards at all or pay off all your balances completely, though—don't just close your cards so you can get them and everything about a credit score far, far away from you. Closing a card lowers the amount of available credit you have, and that can increase the percentage of credit used. This is another thing that can make your score suck, and you don't want to do it if you don't have to.
The ultimate goal would be to have multiple credit cards open or a very high limit credit card open, but not to carry any balance on those cards. We can all dream, can't we?
Understand Credit Scores, and Watch Your Score Soar
At the end of the day, credit scores are actually pretty simple, even though they are genuinely mysterious.
Your first step to a great credit score is understanding the basics of what a credit score is and what goes into it. Next, you can do this one even if you feel like you can't: make smart financial decisions. Try hard to live within your means and always pay off your credit card balance (or work hard to pay down an existing balance).
You'll be the ultimate boss of your credit scores, making sure that they're high—which will open up more and more financial opportunities over time. Like, if you ever want to be able to buy a house (if that's a thing people can still do), a high credit score will allow you to be eligible for a mortgage.
Or, a high credit score will help you qualify for an auto loan if you need a new ride. Being able to borrow money feels so awesome and freeing—you just want to make sure you always do it responsibly so you keep the option open in the future.
Conquer Your Credit
If you want to have one of the highest credit scores possible, it's time to start learning the most you can about managing your finances—and being intentionally smart about how you use the cash in your accounts. One great step to take is joining our community of Fliksters. We regularly send out the latest, greatest, most helpful tips on how you can best manage your money, save for the future, and set yourself up for success.