Is a low credit score stressing you out? Maybe you’re trying to get a mortgage or a credit card with amazing travel rewards and are getting “no”s everywhere you turn. You could even be running into trouble trying to rent an apartment or get a new smartphone. There’s no doubt about it: your credit score is a huge part of your financial life, so if your credit score is, well, less than stellar, you might feel frustrated and unsure what to do. But before you turn to some of those questionable credit repair companies, there are some strategies you can try to boost your credit score for free.
How Your Credit Score Is Calculated
Before we get into some clever ways to bring up your number, let’s take a look at what that number actually means. When it comes to credit scores, most lenders (or other entities that might check your credit) use the FICO credit scoring model, named for the company that developed it, Fair Isaac Corporation. This model scores your credit on a scale of 300 – 850; a score of 700 or above is generally considered “good,” and a score above 800 would be considered “excellent.” Most Americans have a score between 600 and 750; the average score in the U.S. actually increased by 7 points in 2020 to 710.
So how is this number calculated?
There are five factors that go into determining your credit score:
- Your payment history accounts for 35% of your score – This includes whether you make payments on time, how often you miss payments, how many payments you have missed and how recently you have missed payments. Each time you miss a payment on a credit card bill or loan, it negatively impacts your credit score.
- How much you owe on credit cards and other loans accounts for 30% of your score – This includes how much you owe on all accounts and loans, how many and what types of accounts and loans you have, and the proportion of debt you have versus available credit. If you have a lot of loans with high balances and maxed-out credit cards, this will negatively impact your score.
- The length of your credit history accounts for 15% of your score – Having too much debt can negatively impact your score, but so can having no credit history. Keeping a small balance that you pay off on time is actually beneficial to your score.
- The types of accounts you have accounts for 10% of your score – Similarly, having a mix of different accounts, including home loans and store and credit cards can improve your score.
- Your recent credit activity accounts for 10% of your score – Opening a lot of new credit cards or applying for a lot of new loans can make it look like you’re in financial trouble, and can lower your credit score.
So now that you know how the sausage is made, so to speak, you can take some steps to improve your credit score. Some will take a little more time, like consistently making payments on time and paying down some loans, and others will boost your score more quickly, but they are all worth trying.
Reduce Your Credit Utilization Ratio
As we noted above, a major part of your credit score is the proportion of debt you owe versus the amount of credit you have available. This is known as your credit utilization ratio. For example, if you have a total credit limit of $50,000 and you’ve charged $10,000 to your credit cards, your credit utilization ratio is 20%. This would be true even if you paid off the $10,000 in full: credit bureaus use your balance in their calculation.
Because your credit utilization ratio is part of the metric that accounts for 30% of your credit score, lowering it is one way to boost your number. You should shoot to keep it below 30%; some experts say you should try not to go above 10%. How can you do this? Try:
- Only charging essential purchases
- Splitting your purchases between multiple credit cards
- Making extra payments during the billing cycle (remember, credit bureaus look at your statement balance) if you’ve made a large purchase
Try to Increase Your Credit Limit
Having a high limit on your credit cards might seem like temptation to overspend, but it can actually help boost your credit score. Remember, you want a low credit utilization ratio, meaning you should have much more credit available to you than you’re actually using. So if you’re able to ignore that credit limit and not overspend, periodically asking your credit card companies for a credit limit increase is a good idea. Just remember:
- Don’t request an increase on a new card
- Don’t go through with any increases that require a hard inquiry on your credit report, as too many of these can lower your score
- You can usually ask for an increase every 6 months
Check for Errors on Your Credit Report
Even banks make mistakes, and they could make reporting errors that hurt your credit score. That means you should periodically review your credit report to check for any inaccuracies; there are multiple websites that allow you to do this for free. If you do find an error, file a report with the credit bureau – and remember, no error is too small to dispute! Even something as small as your phone number being incorrect could mean that there is an unauthorized user on your account.
Become an Authorized User
Want to know a quick way to make it look like you have a longer and better credit history than you do (remember, the length of your credit history accounts for 15% of your score!)? Request to become an authorized user on a credit card that belongs to a family member with a higher credit score than yours. Being attached to a card that has a long account history (as well a history of on-time payments and a low credit utilization ratio) will positively affect your credit.
Keep Those Old Cards
You might be moving on to bigger and better credit cards, but keeping the first cards you opened could actually be beneficial to your credit score. It all comes back to your credit utilization score! If you close those old cards, you’re reducing the amount of credit you have available to you, and so effectively lowering your credit utilization ratio. Just remember to:
- Make periodic purchases on your old “dormant” cards, or the credit card company will reduce your credit limit or close the account
- Pay these cards off in full
- Ask your credit card company to downgrade the card to one without an annual fee, if your card has an annual fee
When it comes to maintaining a healthy credit score, the first thing you should do is always make on-time payments and not spend above your means. But if you want to speed up the process and boost your score by a few points quickly, try the tips above – you might be pleasantly surprised by the change in your number!