We all like a quick win, but getting one with your credit score can seem like a big ask. Credit scores are known for being slow to rise and fast to fall. But as a constantly changing snapshot of your financial behaviors, your score can shift as you do.
Understanding what drives your credit score is essential and can help you make mindful moves that support your score-enhancing efforts. Payment history, credit utilization, credit mix, new credit, and credit age all help the reporting bureau tabulate your score. Every day, you have the opportunity to improve your score through strategic spending, payment habits, and healthy credit use. You can boost your score more rapidly than you think if you take on your credit score with a strategy.
Now that you know the credit factors making up your score, you need to build a complete credit profile. If any factors are missing, consider how you can make them complete. If you skip this step, you’ll lose the opportunity to earn points toward your total score.
Frequently, the factor that is lacking is credit mix. This factor makes up 10% of your score and reflects the variety of credit types you use. Specifically, credit mix encompasses installment loans, revolving credit, mortgage accounts, and open accounts. While you may not be ready for a mortgage, you can get the most out of this category in other ways.
To boost this aspect of your credit score, you’ll need a healthy mix of installment and revolving credit. Car loans can serve as your installment loan, while credit cards are often good sources of revolving credit. Consider a secured credit card to help you establish a track record of on-time payments. Some secured cards don’t require a credit check, meaning you can start making credit-building moves without prompting a credit-dinging “hard inquiry.”
With the knowledge of what factors make up your score, it’s time to use this intel to your advantage. Understand what levers you can pull within each factor through behavioral change or creative solutions. Consider credit utilization, for example.
Credit utilization is the amount of credit you are using (i.e., current balances) as a percentage of your total available credit. This factor drives 30% of your score, making it the second-most powerful contributor to your magic number.
As it happens, the recommended utilization rate across your revolving credit accounts is also 30%. That means if all your credit lines sum to $10,000, experts advise owing no more than $3,000. You can drive your utilization down by reducing the amount owed on your accounts, but this move requires cash. If you’re working toward paying down debt, it can be a challenge to reduce your amounts owed quickly.
Do what you can to decrease your revolving balances, but consider another approach: asking for a credit limit increase. Longtime customers with a good payment history can often qualify for a limit increase, which expands the credit available. This simple update can decrease your overall utilization just through the magic of math. Call each of your credit providers and ask for the loyalty department to make your request.
Your reputation is everything in work, life, and even your finances. The information that’s logged about your habits in public forums and back-end databases influences your life more than you think. While Google-worthy data is easy to identify, your credit history is something that requires a little more legwork.
Thankfully, consumers have more access to their credit data than ever before. Since the pandemic, individuals were granted access to their free credit report on a weekly basis. This report gives requesters a full history of their total credit activity, sometimes reminding borrowers of long-forgotten accounts.
Request yours to review what’s on file with the three major reporting bureaus: Equifax, Experian, and TransUnion. Each report will show the monthly payment history and balance activity as well as instances of late payments. Review your report for accuracy, and if you find a discrepancy, file a dispute first with the creditor.
This process isn’t immediate, but ensuring the financial data reported about you is accurate can boost your score. That’s especially true if you can show you made payments that were erroneously marked as missing or late.
Your credit score is arguably just as important as your current account balances. While having cash on hand is vital, so is ensuring that your financial track record allows you to borrow when you need to.
Review your credit score and monthly credit-building progress as you analyze your spending habits. Track your improvement over time, consistently working toward a score that supports your goals. A score of 670 earns you a spot in the “good” range, while 740 and above indicates very good or excellent credit.
Keep in mind that your score is more than just a metric. Having a good credit score gains you better rates and terms on loans for major purchases. When you pursue new credit, you’re more likely to get approved and earn lower rates, saving you money long-term. Your efforts toward improving your credit can open a world of financial possibilities and keep more cash in your pocket.