Building credit takes time. But there are a few ways you may be able to steadily improve your credit scores.
1. Review credit regularly
First things first—you’ll likely want to get an idea of where your credit stands. Mistakes may not be common. But if they’re on your credit reports, they could negatively impact your credit scores, so it’s important to monitor your credit reports for errors.
There are a couple of ways you can check your credit reports and credit scores. You can visit AnnualCreditReport.com to learn how to get free copies of your credit reports.
In addition, you could also use a free credit-monitoring tool, such as CreditWise from Capital One. CreditWise helps you discover key factors that impact your VantageScore 3.0 credit score. And it can also give you alerts from two of the three major credit bureaus, TransUnion® and Experian®, when there are important changes to your credit reports.
2. Keep credit utilization ratio below 30%
The percentage of total available credit you’re currently using can impact your credit scores. This is sometimes called your credit utilization ratio.
Paying only the minimum amount due or maxing out credit cards can keep your credit utilization high and negatively affect your credit scores. The CFPB recommends keeping your credit card utilization ratio below 30% to show creditors that you’re managing your credit responsibly.
3. Pay your bills on time
There are two main categories of consumer credit: installment loans and revolving credit.
Car loans, mortgages and student loans are examples of installment loans. In general, the monthly payments on installment loans are fixed month over month. Once the loan is paid back in full, the account is closed permanently.
Revolving credit accounts may include credit cards, home equity lines of credit, and business or personal lines of credit. Revolving credit allows borrowers to access credit up to a certain limit. It can be used and paid down repeatedly for as long as the account remains open and in good standing.
Information from both types of credit accounts can affect credit scores. And making on-time payments each month could help you build credit and improve your scores. On the other hand, late or missed payments could make your credit scores drop.
Setting up reminders on your phone or computer—or setting up automatic payments—is one way to help ensure you remember to make payments by your due date.
4. Make payments on past-due accounts
Payment history is an important part of your credit report and can impact your total score. Here are some factors that make up payment history information:
- Number of times that past-due items appear in your credit report
- How much money you owe to delinquent accounts
- How long overdue your payments are or have been in the past
This is why catching up on accounts that are past due may help your credit score, even if you have existing late payments on your credit report. Paying down debt can result in a lower credit utilization ratio and total debt. In turn, this can improve your score.
Keep in mind that you may see temporary dips in your score as you pay down debt. And paying off debts that are in collections doesn’t guarantee a score increase.
5. Limit hard credit inquiries
When you apply for a new line of credit or credit card, it can trigger a hard inquiry, which can impact your credit scores. Having too many hard inquiries on your credit reports—especially in a short period of time—can lower your scores. Be sure to keep that in mind if you’re thinking about applying for a new credit card or another type of loan.
Hard inquiries might occur when you apply for a new:
- Credit card
- Loan or mortgage
- Cell phone plan
- Apartment lease
- Job
6. Consider applying for a secured credit card
If you’re having trouble getting approved for credit, a Platinum Secured Credit Card might be a good place to start. Secured and unsecured cards work in much the same way. But secured cards typically require a security deposit to open an account.
New credit inquiries can cause your credit scores to dip temporarily. But credit cards are one tool that can be used to build credit. Responsible use of credit cards, like paying your bills on time every month, can help improve your scores.
7. Beware of promises of quick credit score fixes
A quick fix for your credit scores sounds enticing. But be wary of credit repair services that claim they can boost your credit scores quickly. Most of the time, repairing your credit scores is going to take time.
If you’re looking for help managing your finances, you could consider credit counseling services or other credit card debt relief options.
