What is a credit score?
A credit score is an assessment that lenders use to evaluate the likelihood that a borrower will pay a loan back on time. Experian, Equifax, and TransUnion all issue credit scores on a three-digit numerical scale using a form of Fair Isaac Corporation (FICO)credit scoring.The credit scores are based on your debt-management history, and an evaluation of the way you have handled credit and bill payment in the past. Most people have more than one credit score, issued by the various agencies. Although there are sometimes small variations between agencies, the factors that they take into account are largely the same. Good credit habits like paying bills on time promote higher credit scores, while late payments, or failure to pay altogether, lead to lower scores.
It sounds innocuous, but low credit scores can become a serious hindrance for people whose scores were impacted by common life occurrences. For example, let’s say that you ran up credit card bills in college, or were late paying rent when working your first, low-wage job as an adult. Your credit score was likely impacted as a result of these missteps. Later in life, when you want to start a business or get a mortgage to buy your first house, you may find that traditional lenders are unwilling to give you a loan, or if they are, your interest rates are likely to be higher than those of an average lender. Conversely, if your credit score is solid, you will find it easier and less expensive to get the loans you need to make investments that will give you financial security in the long term. It can become a vicious cycle.
Luckily, credit scores are not set in stone. You can improve your credit score over time, but it isn’t a quick fix. Therefore, the sooner you get started, the better.
5 simple ways to improve your credit score
Improve your payment history
Nothing will improve your credit score like paying your bills on time. On the other hand, if you miss payments, or your payments are marked as a delinquent even for a short period of time, it will damage your credit score—delinquencies can remain on your credit report for up to seven years. If you are more than thirty days late on a payment, it is a good idea to call your creditor and check if there is any way that you can make up the payment, or pay in installments, to avoid the delinquency being reported. The more months that pass in which you have no delinquent payments, the more your payment history rating will improve.
Boost your credit utilization ratio
Payment history is not the only element included in your credit rating—credit utilization is another important factor in your score. Credit utilization is essentially your credit card balance amount compared to your credit limit—the closer you are to your limit on an ongoing basis, the lower your credit utilization score will be. One easy way to improve your credit utilization score is to make small payments, or micro-payments, throughout the month. Not only do micro-payments help keep credit card payments down and prevent unpleasant surprises at the end of the month, they also immediately improve your credit utilization rating.
Another way to improve your credit utilization score is to ask for a higher credit limit. Since credit utilization is essentially a ratio, if the limit is higher, the ratio improves, and your credit utilization score improves with it.
You should also refrain from closing existing credit cards. This may seem counterintuitive—if you’re trying to improve your credit score, it may seem like a good idea to have fewer cards. Not true—your credit utilization score is a ratio, and when you close an existing card, you lose that card’s limit in the calculation. If your spending stays the same, the ratio of the spending will go up and negatively impact your utilization score. It’s better to keep the card and use it occasionally so the company doesn’t close it by default.
Become an authorized user
Friends and family can help you boost your credit rating, with essentially no risk to themselves. If you have a friend or relative with a strong credit history and a high credit limit, ask if he/she would be willing to add you as an authorized user in his/her account. Your friend doesn’t have to give you a card or even share the account information with you—just adding your name to the account will improve your ratio by expanding your available credit, especially if you have a thin credit file.
Use a secured card
A secured credit card is another tool you can use to boost your credit. A secured card is a card that is backed by a cash deposit, paid upfront, that becomes your spending limit. You can use it like a regular credit card, but the fact that your charges have been paid in advance helps your credit rating, especially if the card reports to all credit rating agencies.
Check and dispute errors
Credit score calculations aren’t perfect, and mistakes can lower your rating. Luckily, users are entitled to a free credit report every year from each of the major credit bureaus, Equifax, Experian, and TransUnion. You can check the report for mistakes, such as payments that were marked late when you paid on time or negative information that is too old to be listed. If you find errors, you can dispute them, and they will be reviewed by the credit bureaus.
Experian Boost—improve faster
The actions listed above will improve your credit score over time. But what if you can’t wait years for your credit score to improve? Experian Boost is a free service that was created to help you move the needle faster than standard methods by giving you credit for on-time utility, telecom, and certain streaming service payments like Netflix. Experian Boost uses your bank records to find on-time qualifying payments for these monthly bills and adds the records to your credit file. The more on-time payments are included, the better your payment history becomes. And it’s risk-free—Experian Boost only includes payments that are made on time and ignores any that are late.
Experian Boost can make a significant difference for people with shorter credit histories. The length of your credit history plays a big role in your credit scores, and if you haven’t been at it for long, it can be hard to get ahead. You can build your credit history by adding more accounts to your credit file with Experian Boost to prove your ability to make timely payments. The method works—87% of people with very poor credit ratings saw their FICO score increase when using Experian Boost, as did 63% of users with a fair score.
Experian Boost is unique in its offering—other credit repair services only fix inaccuracies, something that you can do on your own, and they often charge thousands of dollars for their services. The services that do more than fix inaccuracies are usually considered deceptive, such as piggybacking services that add you to a stranger's account. Experian is the only credit boosting service that is free, risk-free, and completely above board.
To sum it up
There are many ways to improve your credit score, but the majority are gradual, and can take several years before you see results. By adding Experian Boost, you can raise your FICO credit score in minutes. Over four million Americans have already connected their accounts to Experian Boost and are enjoying improved credit ratings at no cost. So, what are you waiting for? Start to improve your credit scores today with Experian Boost.