How to Improve Your Credit Score

Pay Your Bills on Time

Your payment history accounts for 35% of your credit score. So if you've been paying bills late, your credit score will suffer.

To improve your score, focus on making timely payments. If forgetfulness is an issue rather than cash flow, consider setting up autopay, especially for bills with consistent monthly amounts.

It's not just late payments that can impact your credit score — lack of proof of timely payments can also hurt. This is particularly an issue if your utilities are included in your rent or the listed under someone else's name. (The credit score boost of paying your utilities on time only goes to the person whose name is on the bill, even if you also live in the unit and contribute toward payment.) 

The good news: There is a way to boost this part of your credit score by getting credit for those bills you are paying on time but that aren't typically tracked by the credit bureau. For a small fee, companies such as Rental Kharma2 and RentTrack3 can report your rental payments to the major credit bureaus.

If you don't have a credit card, consider getting one. Even if you charge very little on it, paying it off every month will help strengthen your credit score. If you can't qualify for a regular credit card, consider a secured credit card.4 With a secured card, the issuer holds a portion of your credit limit (e.g., $100 of your money on a $200 credit limit) as a security deposit. You make payments every month, just as you would with a regular credit card. If you can successfully manage a secured credit card, you'll often be able to upgrade to an unsecured card.

How much debt you have — and what percentage of your available credit is tied up in debt — accounts for 30% of your credit score. So if you're maxing out credit cards or have a lot of debt relative to your available credit (the sum total of the maximum you're allowed to charge on all your credit cards combined), your credit score will take a hit.

To improve your credit score, focus on paying down debt, especially credit card debt. Not only does this debt carry a higher interest rate, many lenders see maxing out your credit cards as a red flag and will be less likely to lend you money.

Reduce Your Amount Owed

The amount of debt you have and the percentage of your available credit tied up in debt accounts for 30% of your credit score (this is your "credit utilization" — more on that below). If you're maxing out credit cards or have a lot of debt relative to your available credit (the sum total of the maximum you're allowed to charge on all your credit cards combined), your credit score will take a hit.

To improve your credit score, focus on paying down debt, especially credit card debt. Not only does this debt carry a higher interest rate, many lenders see maxing out your credit cards as a red flag and will be less likely to lend you money.

Boost Your Available Credit

While it is always a good idea to pay off as much of your outstanding credit card debt as you can, sometimes the problem is that you are simply using too much of your existing credit. Using all — or a large part of — your available credit will hurt your credit score. Experts recommend using no more than 30% of your total available credit.4

To improve this all-important credit utilization ratio, contact your current credit card companies to request a higher credit limit. Increasing your limit lowers the percentage of your available credit in use, which can boost your credit score.

Whatever you do, be sure you don't use this increase in credit as an excuse to charge more. The goal is to reduce the total amount of debt you have while decreasing the percentage of your available credit that you're using.

Stop Taking on New Credit Card Debt

Acquiring more credit card debt is never good for your credit score, and this could be even more problematic now that lenders are increasingly using the FICO 10 and FICO 10T models for calculating credit scores. Here's why: There's a growing trend of people consolidating higher-interest credit card debt (often from multiple cards) into a single monthly payment through an unsecured personal loan, often with a lower interest rate.

That approach makes a lot of financial sense, streamlining the bill-paying process. However, the new FICO 10 models now monitor what borrowers do after consolidating their credit card debt. Specifically, they assess whether borrowers stay focused on paying down their debt, or if they start using the newly-available credit on their cards, increasing their outstanding balance once again. Those who do so will face more significant penalties under this new model.5 

Correct Errors on Your Credit Report

Sometimes your credit score suffers due to errors or inaccuracies on your report. Be sure to check your credit report regularly for anything that could negatively impact your credit score.

You are entitled to free weekly credit reports from the three major credit bureaus – Experian, Equifax, and Transunion. You can access these at AnnualCreditReport.com.6 Initially offered in response to the COVID-19 pandemic in 2020, this service, which was twice extended, has been made permanent.7

Review your credit reports for any errors that could negatively affect your score. If you do find an error, you can dispute it online through that credit bureau's website:

• Equifax8
• Experian 9
• TransUnion10

If you've been the victim of a data breach, you may qualify for free monitoring throughout the year.