Knowing how to raise your credit score is important if you have little or no credit history or a poor credit history. It can affect numerous aspects of your life and finances.
The three credit reporting bureaus—TransUnion, Experian, and Equifax—maintain a detailed credit report and calculate your credit score. However, the most widely referenced credit score by lenders is your FICO score. Each source has its own proprietary calculation method, and your credit scores will differ between them.
FICO scores range from 350 to 850. A score of 750 or above is “excellent,” while 700 to 749 is “good.” Between 650 and 699 is “fair,” from 600 to 649 is “poor,” and 599 or lower is “bad.”
How Your Credit Score Affects You
Most significantly, your credit score affects your ability to obtain lines of credit (e.g., credit cards, personal loans, business loans, debt consolidation loans, auto loans, mortgages, etc.), their limits, and the interest rates you pay on them. This is because your credit score is considered the primary predictor of the risk involved in lending you money.
The number can influence other areas of your life as well.
In most states, your credit score is used in calculating your insurance score, which in turn is used as a predictor of how likely you are to file an insurance claim and to determine insurance rates. This most commonly affects auto insurance premiums, but sometimes also other types, such as motorcycle, RV, boat, renter’s, or homeowner’s insurance. Higher credit scores help you get lower insurance premiums.
Other parties may also consider your credit score to determine risk. For example, landlords typically check scores of prospective tenants, and some employers check scores of job applicants, particularly for positions related to finance or involving budget management.
Checking Your Credit Report and Score
It’s important to periodically review your credit report to make sure everything is correct.
Everyone is entitled to one free credit report every year from each credit bureau. Download yours from TransUnion, Equifax, and Experian online. This does not include a credit score, though; you must pay for that.
Most financial institutions provide your FICO score for free through your online account. Log in to your bank, credit union, or credit card account and you should be able to find your score, which is usually updated monthly.
Credit monitoring websites allow you to track major factors on your credit report and see your score as calculated by the VantageScore model. Credit Karma and Credit Sesame are two popular options.
Tips for Raising Your Credit Score
- Review your credit report closely for erroneous and missing information
- File a dispute of any incorrect information on your credit report, submitting relevant supporting documentation; do this online through the credit reporting bureau websites
- File a dispute of any collections accounts for which your first delinquent payment was over 7 years ago; these are only allowed to remain on your credit report for 7 years, but they sometimes stay on longer as new collection agencies buy your debt and start reporting it
- Contact lenders or credit card issuers if they aren’t reporting your payments to any of the credit bureaus and request that they do so
- Make all credit card, loan, and other bill payments on time; even a single late payment can drop your credit score, while a history of on-time payments gradually raises it
- Set up automatic bill payments or payment reminders so you don’t miss a due date
- Prevent outstanding bills from being turned over to collection agencies, as your credit score will take a hit for up to 7 years—even if you eventually pay it off; set up payment plans and negotiate to manage unpaid, overdue bills as necessary
- Keep your credit card balances below 25 percent of your total credit limit
- Have several different types of credit accounts, including credit cards and a few types of loans
- Once you have several credit accounts, only open new lines of credit when needed; the longer the average age of your accounts, the higher your score will climb (opening new accounts drops this average, with a more significant impact the fewer accounts you have)
- Avoid hard credit checks, as these remain on your credit report for up to 2 years and lower your score; this is another reason to limit applications for new lines of credit—as well as credit limit increases—to an as-needed basis
- Refrain from closing unused credit card accounts, as this lowers your total number of accounts and the average age of your credit history; if you’re concerned about your spending, lock the card away or cut it up rather than close the account
