Before you’re able to boost your credit score, it’s important to understand the factors that influence it:
- Payment history
- Credit utilization
- Credit history age
- Types of credit on your credit report
- Credit inquiries
While it may seem like there is a lot involved with reaching a good credit score, it’s not that complicated and anyone can improve their credit score with a little bit of patience, planning, and discipline. Follow these 7 tips for a better credit score, with minimal hassle.
1. Open a Chime Spending Account to Help Begin Your Credit History
An estimated 62 million Americans have a thin credit file, according to Experian. This means that they don’t have enough credit history to generate a credit score.
If you have no credit history at all, you’ll have to start somewhere. Opening a Chime account can help. You can open a checking and savings account by downloading the Chime mobile app. From there, you can set up an automatic deposit to savings. This will help you grow a cash cushion that you can use as a deposit for a secured credit card (updated hyperlink). This deposit doubles as your credit limit. When you make purchases with your new card, your account activity shows up on your credit report.
If you feel responsible enough to open a traditional credit card, it’s important to treat it differently than a secured credit card. In this case, you’ll be given a credit limit that you’re allowed to spend up to but not exceed. For first-time credit card users with little or no credit history, the limit will likely be low, so it may feel tempting to max it out and think you can pay it off quickly. However, low credit limits are usually accompanied by high-interest rates that make it difficult to efficiently pay down credit card debt, so make sure you’re only spending an amount that you can afford to pay off every month to avoid interest charges.
According to Jill Caponera, consumer savings expert at PromoCodes.com, this can help you build your credit with one caveat: Make sure “you’re paying more than the minimum balance due and submitting your payments on time.”
2. Automate Your Bill Payments
Payment history accounts for the largest share of your credit score, so it’s extremely important to always pay your bills on time. Setting up autopay on your bill payments on autopilot can help you avoid late payments, which can cost you major credit score points.
“Automating your bill payments can be super helpful, especially if you’re forgetful, busy or something unexpected happens,” says James Garvey, CEO and co-founder of credit-building app Self Lender.
Garvey knows about this first-hand. He launched the app after several late payments seriously dinged his credit score. “I was surprised such a simple mistake could have such a big impact,” he says.
Along with removing the chore of manual bill payment, autopay is a useful practice when you’re trying to properly budget. Knowing those bill payments are coming out of your account is an extra incentive to make sure that you’ve properly funded your bank account to cover the cost of your bill payments.
3. Use Alerts to Manage Due Dates, Account Balances & Credit Utilization
If you don’t want to automate, you can stay on top of payment due dates by scheduling payment alerts for your credit cards, monthly expenses and loans. When you get an alert, you can then set up a payment.
(Moved section up) Alerts can help you keep track of your balances and how much of your available credit you’re using. In other words, alerts can help you manage another aspect of your credit score: credit utilization.
“Credit utilization ratio is the amount of available credit you’re using,” says Randall Yates, CEO of mortgage marketplace The Lender’s Network.
“The lower your credit card balances, the higher your score will be,” says Yates.
Experts typically recommend keeping your credit utilization to no more than 30% of your available credit limit. So, if you have a $1,000 limit on your credit card, try not to let your balance exceed $300 during any given statement period, and make sure you’re paying the balance off in full every month.
When you use Chime, it’s easy to schedule bill payments. Simply log in to the Chime mobile banking app, navigate to the Move Money section, then choose Pay Bills from the drop-down menu. You can schedule Chime Checkbook payments, or set up direct debit payments by providing billers with your Chime deposit account number and bank routing number.
4. A Credit Line Increase Could Boost Your Credit Score
Paying down your balances can free up available credit and improve your utilization ratio. But, debt payoff can take time.
Bumping up your credit card limits may be is a faster way to see potential credit score improvement. The trick is to avoid charging up to your new credit limit and to remember the 30% or less rule.
“Assuming you have a good payment history, asking for a credit limit increase can be a good way to lower your credit utilization ratio, which can positively impact your credit score,” Garvey says.
If you’re prone to overspending, though, you may want to reconsider this course of action. It’s easy to view an increase in your credit limit as an allowance to treat yourself, but racking up more than you can pay off leads to a lot of instant gratification, but also even more long-term debt to pay off.
5. Sign Up for Free Credit Monitoring
Free credit monitoring services, like those offered by Credit Sesame and Credit Karma, can help you keep tabs on your credit history as you work towards improving your score. You can also get a free credit report every 12 months from the three major credit bureaus at Annual Credit Report.
Monitoring your credit can help inform you of errors or inaccuracies on your credit report. For example, you can spot any changes to your credit report and therefore figure out what’s contributing to up and down movements in your credit score, says Nathalie Noisette, founder of credit counseling service Credit Conversion.
6. Dispute Credit Report Errors If You Find Them
An incorrectly reported balance or inaccurate gaps in your payment history can hurt your score in a big way.
You can, however, do something about errors by disputing them with the credit bureau that’s reporting the information. Noisette says she’s worked with clients that have seen their scores increase by 30 to 50 points after successfully disputing an error. If you’re not sure where to start with a credit report dispute, the Federal Trade Commission has a handy guide you can follow.
7. Keep Credit Card Accounts Open to Increase Age of Credit
If you’ve successfully paid off one or more of your credit cards, you’ve definitely earned the right to a victory dance. But don’t close your account down completely.
“Doing so could have a negative impact on your credit, as it will lower your available credit limit and raise your credit utilization ratio,” Caponera says.
And, if you end up needing a credit card down the road, you may have to apply for a new one, which could hurt your score since inquiries for credit shave off a few points each time.
Additionally, one of the factors that affect your credit score is credit age, so the longer you keep your account open, the more you will appear as a seasoned credit cardholder.
The better option? Keep the card open and use it to make a small purchase every month, then pay off the balance, Yates says. This keeps the account active so your credit card company doesn’t shut it down and it’s an easy way to continue your positive payment history streak.
Improving Your Credit Score Isn’t Complicated
Raising your credit score doesn’t involve any secret formulas or hacks. It’s all about patience and knowledge. It’s key to know which habits have the most impact on your score, such as paying bills on time and keeping your credit card balances low.
By following the tips here, you can put positive habits into regular practice and watch your credit score improve over time.