Tips on How to Boost Your Credit Score and Stay Debt-Free

Debt can often feel like a 2-ton boulder strapped to your back, and your credit score might be to blame. Whether you’re applying for a loan, a credit card, or even renting an apartment, your credit score plays a pivotal role in determining your eligibility and the terms you’ll be offered. 

Thankfully, no matter how much debt you have or how low your credit score is, you can always build it back up anytime. In fact, there are several ways to boost your credit score so you can take control of your finances and finally live debt-free!

Understanding Credit Scores

Your credit score is a numerical representation of your creditworthiness, ranging from 300 to 850 in most scoring models. The higher your score, the more trustworthy you appear to lenders.

Credit scores are usually calculated based on several factors, including:

• Payment history
• Credit utilization
• Length of credit history
• Types of credit accounts
• New credit inquiries

Each factor weighs differently in determining your overall credit score. For instance, payment history has the most significant impact, accounting for about 35% of your FICO score, the most commonly used credit scoring model.

Ways to Improve Your Credit Score

Tip #1: Setup Automatic Payment

More often than not, people mean to pay their credit card bills but forget. Then, the late fees/interest gets tacked on; before you know it, the bill becomes unmanageable. A smart way to beat this is to set up automatic payments. This will keep your bill from getting out of control by ensuring you never pay a late fee/accrue interest and boost your credit score.

Tip #2: Check Your Credit Report Regularly

By law, you’re entitled to one annual free credit report from each bureau through AnnualCreditReport.com. Reviewing your credit report allows you to identify any errors or inaccuracies dragging down your score. If you spot any inaccuracies, promptly dispute them with the credit bureau to have them corrected.

Tip #3: Take Advantage of Experian Boost

Experian is not only one of the most accurate credit reporters, but its unique Experian Boost feature can instantly boost your credit score. Some users have even seen an 8- —to 20-point increase!

Experian boost works by first allowing you to link your bank account. Then, it securely views your current account transactions. It looks at consistent bill pay on things like rent, phone, and electric bills and will boost your credit score accordingly!

Tip #4: Increase Your Credit Limit

If you have a good payment history with a credit card issuer, request a credit limit increase. However, proceed cautiously and only request a higher limit if you’re confident it won’t tempt you to overspend. A higher credit limit can increase your available credit, potentially lowering your utilization ratio and boosting your credit score.

Tip #5: Decrease Your Credit Card Balances

This one doesn’t require much explaining. Paying down your balances is the best way to increase your credit score. Pay the minimum balance every money and then throw in whatever extra money you have.

Keeping a low balance shows potential lenders that you’re responsible with credit. Experts suggest always keeping your credit utilization ratio below 30% of your credit limit.

Tip #6: Diversify Your Credit Mix

Lenders like to see that you can manage different types of credit responsibly. If you don’t have a diverse credit mix, consider diversifying by responsibly opening new credit accounts over time. However, avoid opening multiple accounts within a short period, as this can temporarily lower your score due to the increase in new credit inquiries.

Tip #7: Get a Secured Credit Card

Many people forget this option when building their credit score, but it’s highly effective. A secured credit card uses your money as your credit limit. So, if you deposit $300 onto your secured credit card, $300 is your credit limit.

You can then use the credit card as you would any other but with the deposit protecting the issuer from the possibility that you won’t pay off your balance.

Tip #8: Keep Old Accounts Open

As a general rule, the longer your credit history, the better, as it provides lenders with more data to assess your creditworthiness. If you have old credit accounts in good standing, resist the urge to close them, even if you’re not using them regularly. Closing old accounts can shorten your average account age and potentially harm your credit score.

Tip #9: Dispute Credit Report Errors

Just because your credit report says one thing doesn’t mean it’s true. Sometimes, vendors report a payment as late or missing when it’s neither. On other occasions, your credit report will show a payment you paid off months or years ago.

If you notice errors like these, file a dispute with the appropriate bureau immediately. It’s free and can help increase your credit score.

Tip #10: Limit New Lines of Credit

When building your credit, it’s best not to apply for a new credit card for a while. Every time you do so, a hard inquiry appears on your credit report, which doesn’t look good and will decrease your score.

If you need a line of credit, research beforehand to avoid applying for multiple cards.

Tip #11: Pay off Your Credit Card Every Month

Another trick to building your credit is zeroing out your balance each statement period. This keeps your credit utilization low, one of the best ways to strengthen credit. You will also avoid paying interest charges.

Tip #12: Become an Authorized User

When you’re added as an authorized user, the account’s positive payment history and credit utilization can be reflected on your credit report, potentially boosting your score. However, ensure that the primary account holder has a history of responsible credit management, as any negative activity could also impact your score.

Tip #13: Get a Credit-Builder Loan

If you have no credit or are trying to recover from a hit to your score, get a credit-builder loan from a credit union. With a credit-builder loan, the money you agree to borrow is deposited into a bank account held by the lender. Then, for 6-12 months, you’ll make fixed payments.

During that period, the lender will report your on-time payments to the credit bureaus, boosting your score.

Tip #14: Seek Professional Help if Needed

If you’re overwhelmed or unsure where to start, seek help from a trustworthy expert. They can provide personalized advice and assistance in developing a plan to improve your credit score. That way, you can prevent making costly mistakes that can harm it.

Key Takeaway

The one thing all of these credit-boosting tips have in common is the need for patience. 

Even with the best intentions, it may take several months or even years to see significant improvement. Your credit score didn’t get to where it is so it won’t bounce back overnight. Be consistent, stay patient, stick to your repayment plan, and avoid any behaviors derailing your progress; before you know it, you’ll reach your credit score goals!     

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DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.