How to improve your credit score

Your three-digit credit score is a key number. It gives lenders and credit card issuers a snapshot of how well you’ve managed your credit and paid your bills in the past. If you’re stuck with a low credit score, you might struggle to qualify for loans or credit cards. And if and when you do, they’ll come with high interest rates.

Most credit card, loan and mortgage payments you make each month get reported to the three national credit bureaus: Experian, Equifax and TransUnion.

If you pay these bills on time, your credit score will rise. But if you pay any of these bills 30 days or more past their due dates, your credit providers and lenders will report them as late to the credit bureaus, causing your credit score to fall.

Fortunately, you can improve a weak credit score. Once you do, you’ll qualify for loans with lower interest rates and credit cards with valuable rewards programs. The key is to pay your bills on time and cut down on your existing debt.

Take these steps to improve your credit score

If you have bad credit, you can take several steps to boost it:

Pay off credit card debt

First and foremost, you must pay down your credit card debts to start improving your score. If not, the debts will continue to drag your score down.

There are a few different ways that you can pay off credit card debt. You might turn to balance transfer offers, which typically come with a 0 percent introductory APR — usually for 12 to 21 months. This gives you the chance to pay off your existing credit card debt without having to pay interest on it. Just be sure you pay off the debt you’ve transferred before the 0 percent interest offer ends. If you don’t, your remaining balance will be assessed at your card’s normal APR.

Another way is to consolidate your debt into a personal loan. With a personal loan, you borrow a lump sum of cash, usually at a lower interest rate than you were paying on your credit card, and pay it back each month.

Finally, you could try the snowball method and pay off the card with the smallest balance first. Other debts on other cards will continue to accrue interest, but this method may give you the motivation to pay off the next card and so on until you are debt-free.

You could also consider contacting a non-profit credit counseling agency about a debt management plan. You’d pay the agency instead of the creditors directly, but it could help you lower your interest rates significantly and keep to a fixed repayment schedule.

Use a secured credit card

If you lack a credit history, you can also apply for a secured credit card. These act like traditional, unsecured credit cards but with a credit limit tied to a deposit that you make with the bank issuing the card. So, say you deposit $600 with the bank. You’ll then have a secured credit card with a credit limit of $600.

Once you have a secured card, use it to make small charges throughout the month. Pay these charges off on or before your due date and those on-time payments will be reported to the credit bureaus, which will help bump up your credit score. Note: Some cards don’t report to the credit bureaus, so you should double check before applying.

Additionally, you should check your credit report periodically to ensure there is no fraudulent activity occurring. When you’ve demonstrated that you’re a responsible borrower, you may be able to get your security deposit back and convert your account to an unsecured credit card.

Remove debt collection accounts from your credit report

Perhaps you were in debt previously and have finally paid it off, but the collection account remains on your credit report. You could ask your original creditor or debt collector to remove the collection by sending a goodwill deletion letter. Try to be honest about the mistakes that got you into debt in the first place, ask for forgiveness and present how your payment history has improved.

If that doesn’t work, you may have to wait. Collections can stay on your credit report for up to seven years, though their effect should diminish as time passes and you practice good credit habits. After seven years, the debt collection should automatically delete itself — if not, you can file a dispute with each credit bureau to get it removed.

Decrease your credit utilization ratio

Your credit utilization ratio measures how much of your available credit you’re using. If you have a high amount of credit card debt, paying it down can boost your credit score.

Ideally, your monthly credit card balance will be a fraction of your overall credit limit. Some experts say your credit utilization should be less than 30 percent to maintain a high score. However, it’s best to keep it as low as possible.

Become an authorized user

As an authorized user, you’re added to an existing user’s account. You’ll be sent your own credit card that you can use to make purchases, but the primary account holder remains responsible for making the payments.

When the primary account holder makes their on-time credit card payments, they are reported to the credit bureaus in your name, too. This develops a record of on-time payments in your credit file, something that can help you build a credit history or improve a bad credit score.

Most commonly, parents add their children as authorized users to help them build their credit scores. It’s best for you to ask a trusted family member or a partner. The credit bureaus often do not recognize authorized users if you join a stranger’s account. Plus, if you’re an authorized user, be sure to only spend what the account’s primary cardholder and you agreed upon.

Make payments on time and in full

The most important step to raising your credit score is to pay your bills on time and in full. Paying 30 days past your due date on accounts that are reported to the credit bureaus — including mortgage, auto, student, credit cards and personal loans — could cause your credit score to fall by 100 points or more.

You should also pay off your entire monthly balance if you can so that you don’t carry over a balance that accrues interest. If it’s difficult to fit your entire credit card balance in your budget, you should focus on spending only what you can afford, rather than living beyond your means using credit.

Link rental and utility bills to your credit report

Typically, many payments that consumers make — like rent, utility and phone bills — don’t get reported to the credit bureaus. So, those bills don’t help increase credit scores. You can, however, sign up with rental reporting agencies that will report your rent payments to the credit bureaus, such as Rent Reporters, Rental Kharma and LevelCredit.

Be aware, though, that while reporting your rent through these services might help your VantageScore and some alternative versions of your FICO score, it won’t help boost the FICO score that lenders most often use when determining if you qualify for mortgages and other loans.

You can also sign up with services such as Experian Boost and UltraFICO. The former can help you add your utility, rent, telecom and other types of bills to your Experian credit report. The latter links to your checking, savings or money market accounts to give the credit bureaus a better understanding of how you manage your money. The goal is to help consumers who aren’t paying back loans or haven’t used credit cards extensively build a solid credit score.

While this might raise some versions of your credit score, it won’t help them all. Experian Boost will increase your FICO 8 score. Lenders, though, might not use this score when determining if you qualify for a loan. And the UltraFICO score is only being offered now through a small group of lenders as part of a limited pilot phase.

Open a credit-builder loan

Some banks offer credit-builder loans, which are small loans that you take out for the sole purpose of paying them back. The regular payments will help you build a credit history if you lack one or improve your score through positive payment history. Just be sure to make your payments on time and that you can afford them.

Limit credit inquiries

Don’t apply for too many credit cards or loans at one time. Every time issuers or lenders do a hard credit inquiry, your credit score takes a small hit, usually about five points. Apply for too many loans or cards at once, and those small hits can add up. Plus, if you apply for too much new credit at once, that can signal to some lenders that you’re desperate for new funds or tend to overspend, which may jeopardize your next credit application.

How long does it take to improve your credit score?

How long does it take to boost your credit score? Unfortunately, there’s no single answer. Credit bureau Experian says it could take a few months to several years depending on how damaged your credit score is.

In general, if you’ve only been making late payments for a few months, you can start to see improvement within a few months of starting on-time payments. If you filed for bankruptcy, a substantial improvement could take a few years.

There are no quick fixes. You need to commit to a long-term strategy of on-time payments if you want to get your score into the good or excellent range.

Though derogatory marks on your credit report can last up to seven years, and Chapter 7 bankruptcy for 10 years, as time goes on, the negative items will drag your score down less and less. As you continue adding positive payment history to your report and your account ages (increasing your credit history), your credit score will increase. You may find that when old debts finally fall off, they hardly have an impact.

Bottom line

A high credit score can make your life easier when you apply for loans and credit cards. Fortunately, building a good credit score is far from impossible. Just follow the simple rules: Make your payments on time each month and pay down your credit card balances and other debt. Do this consistently and your credit score will steadily rise.