Is your credit score in need of a pick-me-up? We have some good and some bad news:
The bad news is that there’s no “quick-fix” when it comes to credit, and nothing happens overnight. The good news is that there are many ways to improve your credit score, and they’re not that difficult to implement.
Here are nine simple yet effective ways to improve your credit score.
#1 Look At Your Credit Report
The best way to start improving your credit score is by getting to know your credit report. Your credit report stores your credit history and accounts for all the credit scoring factors you should concern yourself with. By requesting your credit report, you can learn about your utilization rate, credit mix, missed payments, and more.
Extra Tip: Federal law gives you free access to credit reports from the three major credit bureaus (Equifax, Experian, and TransUnion). Using the government-mandated AnnualCreditReport.com website is the quickest way to get them.
When you know what’s accounted for on your credit report, you’ll better understand what you keep an eye on.
Checking on your credit report might also bring some major red flags to your attention. There might be negative marks on your report that you didn’t even know were there. Things like missed payments, debt collections, or numerous unauthorized hard credit checks can severely impact your credit score. You might have to put out some fires ASAP.
Looking at your credit report for missed opportunities is the fastest way to know what needs to be addressed in your credit building game plan.
#2 Pay Off Your Balances
When your credit score has taken a downturn, do your best to pay off any outstanding balances. Just because you’re paying the monthly minimums and not maxing out your credit cards, that doesn’t mean you’re in the clear.
Your utilization rate measures how much available credit you’ve used; it’s a major factor in calculating your credit score. A high utilization rate makes a wrong impression on potential creditors because it can reflect poor money management. If you keep a high utilization rate, you can start to see a downtick in your credit score.
If this is the case for you, the simplest way to rebuild your credit score is to decrease your utilization. Make more than the minimum payments and lower any high balances. Ultimately, your utilization rate will go down, and you should see an improvement in your score.
#3 Use the Extra Debit Card
Extra is a debit card that helps you safely build credit no matter your life stage. Extra lets you go about your regular spending while building credit. Here’s how it works:
Once connected to your bank account, Extra creates a spending limit (Spend Power) based on your balance. From there on, your spending will help you build credit and rewards. When you buy something on your Extra Card, they spot you for the purchase, then automatically pay themselves back the next business day.
At the end of each month, Extra reports your everyday purchases to credit bureaus as credit-worthy. So, yeah, Extra allows you to build credit with a debit card; what a game-changer.
Extra helps you avoid credit card debt, interest, and credit limits by allowing you to build credit without a credit card. If those aren’t enough perks, the Extra card also lets you earn up to 1% back in redeemable reward points.
To understand how to build credit with Extra, check out How Does Extra Work?
#4 Be Patient
When you look at your credit report, another credit scoring factor you’ll notice is your length of credit history. This might be your weakest credit category if you're a youngster.
Most credit experts concur that seven years of credit use is adequate time to determine a person’s creditworthiness. In this case, you must be patient and let your credit history build up.
Extra tip: Remember that credit length is based on the average age of all your credit accounts, so even if you opened your first credit card seven years ago, your length of history might not reflect that.
#5 Diversify Your Credit Mix
Credit bureaus find you more credit-worthy when you can manage different accounts under different agreements; this is why your credit mix is factored into your credit score. To improve your credit score, you might want to open a new account (under the right circumstances).
If you’ve stuck to one credit card because you never saw the need for another, consider a new account. Instead of getting a loan or opening a new credit card if you don’t need one, sign up for Extra if you want to diversify your credit mix.
#6 Limit New Lines of Credit
Sure, we just pointed out the importance of having a diverse credit mix, but that doesn’t mean running to the bank and opening a new credit line. In most cases, applying for new credit requires a credit check known as a hard inquiry. Although hard inquiries don’t significantly impact your credit score, they can still make a difference.
Aside from incurring a credit check, a new line of credit can also decrease your length of credit history. As previously mentioned, your credit report takes the average age of all your credit accounts. One new account can bring the average age down a few years and hurt your credit score. Maintain a good credit score by staying true to your oldest credit accounts and avoiding the tempting young hot ones.
#7 Set up Automatic Payments
Automatic payments are a great way to pay your bills on time and build your credit. Simply making your payments won’t build your credit, but making your payments on time certainly helps. Automatic payments help you avoid missing a payment (which is the last thing you want to do).
A missed payment can stay on your credit report for over seven years, and if it never gets paid, it can snowball into something worse.
#8 Create a Budget
A budget will help you manage all aspects of your finances better, including credit. A budget accounts for your income and expenses, which lets you get a better hold of your credit use.
If you’re looking to pay off your debt or make big purchases that require planning, a budget will help. Instead of risking your credit score by using credit and keeping your utilization high, you can build up your cash in checking and savings accounts until you’re ready to make your purchases.
When you use debit cards and cash according to your budget, you can avoid debt, interest, and raising your credit utilization rate. Slowly but surely, sticking to your budget will help you use credit more responsibly and improve your credit score.
#9 Speak With a Credit Counselor
It’s literally a credit counselor's job to find the best ways for you to improve your credit position. Credit counselors work in your best interest, and their worlds revolve around credit use. Similar to financial advisors, credit counselors can help with an array of financial matters:
- Creating debt management plans for paying off your debt and debt consolidation
- Finding and choosing credit cards and loans with the lowest interest rates
- Sculpting a financial plan for your future
Extra Tip: To learn more about credit counseling and how it can help you check out our Ultimate Guide to Credit Counseling.
Your Credit Scores On the Up and Up
Your relationship with credit will have its ups and downs, but as long as you keep putting in the effort to manage credit responsibly, things will turn out okay. Your credit score won’t grow to perfection overnight; it takes time.
Keep your eye on your credit report and look out for any room for improvement. You can easily go from a good to an excellent credit score with a few slight changes. Is your utilization too high? Are you missing payments on an old credit card? Is someone applying for credit using your social security number? Your credit report will tell you everything you need to know.
Understanding the basics of credit and all the credit-building tools at your disposal will do you wonders. Learn more about credit on the Extra blog; the Credit Wizard is always happy to help.