Credit is one financial topic that most people don’t want to discuss at a cocktail party. Maybe you have bad credit. Maybe you have no credit. Maybe you don’t even know what your credit score is. If you are suffering from credit confusion, you have come to the right place because we’re about to spill the beans on how to improve your credit score.
FICO scores, used most often by lenders, were created by Fair Isaac Corporation. FICO scores draw data from consumer credit reports collected through credit reporting agencies. FICO scores can range from 300 to 850, with 850 being considered an excellent credit score.
Why does your credit score matter? According to myFICO, “Credit scores influence the credit that’s available and the terms (interest rate, etc.) that lenders may offer. It’s a vital part of credit health.”
While FICO considers a “good” credit score to be 670 to 739, credit qualifications can vary by lender. Meaning, if you are trying to get low interest rates on a new car loan, one lender may have a cutoff credit score rating of 730. Another lender may provide the most competitive interest rates to those with credit scores of 760 and above.
So, how do you improve your credit score?
Credit score qualifications may fluctuate, but we can all agree that good credit is a good thing. If your credit score could use some TLC, check out these healthy habits from real people with excellent credit.
One Reddit commenter recommends opening up a credit card to use responsibly as soon as you are legally able.
Redditor pajam writes: “The moment I turned 18, I opened a student account version of a store credit card in order to begin my credit history early. I started with a limit of only $150, but I used it every other month and paid it off in full each time.”
Set a credit score goal
“The Credit Score Expert” Linda Ferrari knows her stuff. Ferrari recommends to first and foremost set a reasonable good credit goal that you can work toward each month.
“I make sure that my clients have all of the information they need to be realistic in setting their goal score, and once they plant that number in their minds, there is little that can stand in the way of their success,” she writes. “Your score goal should be nothing less than a 750.”
Pay your bills on time
This tip may seem simple as it is the most obvious, but Ann-Marie Murphy of Quizzle attributes her 808 credit score to her ability to pay bills on time.
She says, “I’ve never had a payment reported as late on my credit report. This is crucial to your credit score. Payment history makes up about a third of your credit rating. If you have a good score and miss just one payment, your credit score can suffer upwards of 110 points.”
Get rid of credit card debt
You knew this was coming. Credit Sesame credit expert John Ulzheimer explains, “Even if you can lower your credit card debt by just 10 percent, you’ll likely see an improvement in your scores by the next month.”
Don’t sweat a small credit card balance
A Reddit financial counselor with seven years of experience blows the zero credit card balance myth out of the water.
Gluvin explains, “You get credit for making a regular payment. You lose credit for having a high balance in proportion to you overall limit. Credit goes up with good credit behavior. Having a few bucks on your balance at the end of the month doesn’t mean anything to the credit bureaus about your credit worthiness.”
Treat your credit cards as cash
No credit can be just as damaging as bad credit.
Handling credit cards responsibly is one of the best ways to prove your financial accountability. If you’re worried about overspending on plastic each month, follow Credit Card Forum commenter Ed’s lead.
“I have zero balance on three cards. I use them each month to pay for everything. My paycheck sits in an account the entire month. At the end of the month, I use my paycheck to clear my CC balances,” he says.
Grow your checking & savings accounts
Nexis Real Estate asserts that this easy credit score tip is most often overlooked: “Develop checking and savings accounts. Lenders view checking and savings accounts as signs of stability, yet lots of people neglect this simple thing. Opening an account is likewise one of the few things you can do … to start constructing a financial history.”
Track your credit
If you want to improve your credit score, there’s an app for that.
One Reddit commenter reveals that tracking your credit progress for just a few months may be enough to bump your score by a good 50 points.
“I use Credit Karma (app), and it gives a really good breakdown on where you can help your score (utilization, credit inquiries, age of accounts, etc.),” AlexanderKeithIPA writes. “It’s free and never adds inquiries, so you can check it as often as you like. My brother and dad gained like 50 points after using it for a month or two.”
A version of this article was published in March 2015.