20 ways to improve your credit score

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Credit scores are three-digit numbers used by lenders to decide whether a person should be approved for loans or a line of credit. Your FICO score ranges from a low of 300 to a high of 850. The higher the score, the higher the chance lenders will consider you to be financially responsible and approve your request for something like an auto loan or mortgage. The lower the score, the more likely you are to either be denied or receive an offer with a high interest rate.

If your score isn't where you'd like it to be, don't lose hope. There are plenty of misconceptions about credit scores, but one thing remains true: There are steps you can take to raise your score.

If you're hoping to improve your credit score and get your finances back on track, here are a few helpful tips.


Make timely payments

Paying your bills on time is the first step to building stellar credit. Your payment history makes up 35% of your overall FICO score. Every time you miss a payment, your score takes a hit. Consider enrolling in an automatic payment system to guarantee you never fall short on a due date.



Get a credit card

If you're new to the credit game, one of the first and best ways to establish or improve your score is to get a credit card. Just refrain from splurging. Start with a low spending limit and make small charges that can be paid off in full each month. Your credit score will increase, and those who view your report will see that you are a responsible and reliable borrower.


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Get a secured credit card

If you have little to no credit and you're finding it difficult to get approved for a credit card, consider getting a secured credit card to improve your credit. Unlike a credit card - a line of credit used to borrow money - a secured card requires a cash deposit that serves as a safety net if you miss a payment. Unlike a debit or prepaid card, activity on your secured card account is reported to the major credit bureaus.



Know your credit utilization rate, and keep it low

Many know their credit score but remain in the dark when it comes to their credit utilization rate. Your credit utilization rate, a key component of your overall score, is calculated by dividing your current credit card balances by the total amount of credit you have available. According to Experian, having a low credit utilization rate shows lenders that you have good money management skills and can avoid overspending. In turn, your credit score will increase and attaining loans or mortgages becomes easier.

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Know when to rate shop, and when not

If you're searching for an auto loan or mortgage, it makes sense to shop around in hopes of finding the best deal with long-term benefits. Low interest rates, for example, can make a major impact when budgeting for your future. But each time you apply for a new financial opportunity, your credit score is hit with a hard inquiry. Hard inquiries lower your score by a few points. It may sound like a Catch-22: You work hard to maintain a great credit score, but finding deals that will steadily improve your score hurt it along the way. Bureaus are able to identify that you're shopping for the best rates by noting the types of credit lines you're applying for. So if you're in the market for a new car or home, the extent of damage to your score can vary. But if you're applying for dozens of credit cards in a short amount of time, your credit score will reflect the fact.



Diversify your credit

Diversifying your credit is key to improving your overall score. Having too many accounts open might be too much to keep track of financially, but a manageable mix of accounts like credit cards, mortgage loans or retail accounts will show lenders that you are able to responsibly distribute funds. A credit mix makes up 10% of a credit score in the FICO credit score formula.


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Pay your bill more than once a month

If you find yourself with some extra money after paying your bills on time, consider making another payment on an account. While making multiple payments on an account won't directly boost your score, its effects might. Making timely payments is a great way to continuously improve your credit score, and by paying more than once a month, you're guaranteeing you won't miss a due date and your credit utilization rate will also be lowered.



Only open new credit cards when needed

The urge to shop 'til you drop can be even more pressing when your favorite stores offer a sweet deal for a new credit card. But if the extra expenses don't align with your budget, and you're applying for too many cards at once, your credit score will drop. Only open a new credit card account when it is absolutely needed and you know that you can afford the monthly payments.


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Don't close unused credit cards

When you find an old credit card that you haven't used in ages, your first instinct might be to close it out and chop it up. But if you're hoping to improve your credit score, your best bet is to keep the account open. This additional account will count toward your utilization credit rate, resulting in a lower total.


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Pay off debt

The amounts owed on accounts determine a whopping 30% of your FICO credit score. Accumulating piles of debt might sound like an obvious money mistake, but losing your job, racking up hospital bills or anything in between can lead to unfathomable financial circumstances. Pay off your debt in installments to improve your credit score.


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Deal with delinquent accounts

Life happens. A busy schedule or an intense workload might lead to forgetting a payment. The next step, however, is to pay the bill ASAP. Missing your payment for 30 days will lead to a delinquent account. Delinquencies not only lower your score, but remain on your credit score for up to seven years. Make timely payments to avoid this problem or, if you're already in this boat, call the company to see what you can do to get back on track.


Pay off credit cards with the lowest balance

While making minimum payments on each of your credit card accounts is a great way to stay on top of debt, another way to keep your credit score on the rise is to focus on an account with the lowest balance and make extra payments toward it. Not only will you feel more accomplished after your card reaches a $0 balance, but your credit score will take a nice leap as well.


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Check your report and dispute inaccuracies

A report released by the Consumer Financial Protection Bureau (CFPB) states that the top complaint received by the three major credit bureaus is incorrect information listed on consumers' reports. And, according to a study conducted by the Federal Trade Commission (FTC), 26% of participants found inaccuracies that could affect their chances of being approved for loans or credit lines by lenders. Checking your score often won't cause it any harm, and it will allow you to stay on top of any errors that might be hurting your chances of being financially successful.

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Become an authorized user

If you have a trustworthy family member or friend who pays bills on time and has a good credit score, become an authorized user on their accounts. An authorized user is a secondary account holder who can make purchases but has zero responsibility for making payments. The account will appear on your credit report, and, as long as bills are paid in a timely fashion, you'll reap the benefits. This is a great option for parents hoping to establish credit for their children.



Apply for a credit-builder loan

When paid in a timely fashion, credit-builder loans are an efficient solution to improving or building your credit score. Small financial institutions offer money that is deposited in a bank account monitored by the lender. The borrower makes monthly principal and interest payments. When the loan is finally paid in full, the borrower receives the money from the account. Each payment is reported to the credit bureaus and at the end of the loan term, you'll have a nice lump sum of cash coming your way. It's a win-win.


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Avoid bankruptcy

Filing for bankruptcy might sound like the solution when bills begin to pile high, but according to the Fair Credit Reporting Act, the bankruptcy public record can stay on your credit report for seven to 10 years depending on the chapter you filed. Filing for bankruptcy does not wipe your credit report and restore perfect credit. It does, however, halt lenders from approving new accounts or loans.

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Separate accounts after a divorce

Although it might feel like an end, divorce is a new beginning for both parties. If you have joint accounts with your partner, continue to make payments to prevent your credit score from dropping. But take steps to either close or divvy up those accounts to the person responsible for monthly payments. If you or your ex-significant other refuse to make payments due to separation, both of your credit scores will suffer.



Consider credit counseling

If the amount of debt you've accumulated feels unbearable, credit counseling can help you organize your finances and set you on the path toward financial success. The National Foundation for Credit Counseling assists millions of individuals with debt through one-on-one debt counseling and can help you improve your credit score if it has taken negative hits.


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Beware of credit repair scams

Just as there are individuals working to help you improve your score, there are also scammers hoping to get ahold of your Social Security number and apply for credit illegally. The Credit Repair Organizations Act "prohibits untrue and misleading representations and requires certain affirmative disclosures in the offering or sale of 'credit repair' services," but repair scams are still out there. Be wary of the signs and never provide personal information on an unsecured or unknown platform.



Have patience

We get it. Having a perfect credit score is the dream. And as hard as you work to boost your score, it may feel like the process is slow-going. Stay patient. Continue making timely payments and consider new, attainable ways to keep improving your score with credit cards or smart loans. Also, don't stop at your credit score. There are many other easy ways to start saving money.


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