Are you nowhere near your ideal credit score?
The average FICO score in the U.S. is 706 on the scale that ranges between 300 and 850.
Only 1.2% of Americans have a perfect 850 credit score, so don’t feel bad if you have room for improvement.
Your credit score affects more than getting approved for loans and credit cards. Some employers check credit scores, and insurance companies can consider your credit score when setting rates in some states.
No matter where you’re starting, you have the power to improve your credit score over time. Understanding what goes into your FICO score and what affects it most can help you increase.
Check out these five ways to get closer to your ideal credit score.
1. Know Your Credit Score
Before you can set goals for improving your credit score, you need a realistic understanding of where you sit right now.
Pull your credit report to not only get your score but to also see everything that’s on the report.
Review everything that’s on your credit report. There’s a chance that some of it isn’t accurate. One study showed that 23% of consumers had errors on their credit reports.
Errors to look for include:
- Accounts that aren’t yours
- Your accounts that aren’t listed, especially if they’re in good standing and could help your score
- Account inaccuracies, such as an account showing open when it’s not
- Accounts that appear twice
- Bankruptcies or foreclosures that show up incorrectly
- Incorrect delinquent accounts
- Inquiries that aren’t correct
Even little errors can knock down your credit score.
Lenders and decision-makers also look at more than just the credit score. If an account shows as delinquent when it’s not, it could affect the decision even if your overall credit score is still good.
An account that shows open instead of closed makes it look like you have lots of available credit when you don’t.
If you find errors in the report, you can dispute them to get them corrected. Once the information is accurate, it can boost your credit score.
If everything is accurate, look at your FICO score. Set a goal for improvement to help keep you motivated.
Check for derogatory marks on your report, such as late payments. Focus on how you can correct those issues or improve your habits to boost your score.
2. Pay All Bills on Time
One of the best things you can do to reach your ideal credit score is to pay your bills on time.
If you’re already current on everything, make sure you keep the accounts that way. Setting up your bills on auto-pay helps you avoid missed payments. This saves you from having late fees and prevents the accounts from showing up as delinquent on your credit report.
Once your account is 30 days past due, your lender can report it to the credit bureaus.
Sometimes past due bills for things other than loans or credit cards can show up on your credit report. If you fail to pay the bill and it goes to collections, the collection account might show up on your credit report.
If some of your accounts are currently past due, focus on getting them caught up. Contact your creditor to work out payment arrangements if you can’t get the bills caught up immediately.
3. Reduce Your Debt
Your credit utilization ratio affects your FICO score. It can also affect decisions by people who make an inquiry into your credit.
Your credit utilization is the amount of your available credit that you’re using. Say you have a total of $10,000 when you add up the limits on your credit cards. If you have $2,000 charged on your cards, your utilization rate is 20%.
A higher utilization ratio can hurt your credit score. If all of your credit cards are near their limit, it could stop you from reaching a higher score.
The common recommendation is to keep your ratio below 30%. After that, it can start affecting your credit.
Paying down your debt can help improve your ratio by freeing up your available credit. Once you pay off credit cards, leaving them open is usually the best option even if you don’t plan to use them again. The available credit helps your ratio.
You can request higher limits on your credit cards to improve your ratio. But if you’re tempted to charge up your cards to the new limit, you’re back where you started with a high credit utilization ratio. You could also get yourself into a difficult financial situation where you can’t afford your payments.
4. Limit Applications for New Credit
When you apply for new credit cards, loans, or other forms of credit, the lender does a hard inquiry on your credit. Your credit score will dip when this happens and can affect your score for 12 months. The inquiry stays on your report for 24 months.
If you’re shopping around for a certain type of loan, such as a mortgage or car loan, with a short time period, all of the inquiries count as a single hit.
Before you start applying for credit, make sure you’re ready to follow through with it. Ensure you’re qualified for the loan to avoid unnecessary inquiries.
5. Use a Credit Repair Service
If you have errors on your credit report, working with a credit repair service can help. These services can handle disputing the mistakes for you.
Disputing them yourself can be time-consuming and difficult. Using a service to handle it can save you a lot of time and stress.
Unfortunately, many scam companies call themselves credit repair services and promise results that sound too good to be true. If you’re considering this option, choose a reputable credit repair service.
Reach Your Ideal Credit Score
Aiming to improve your credit can help you experience future financial success for things such as applying for loans or even landing a job. Your ideal credit score might be different than someone else, but working toward improvement is worthwhile no matter what your goal.
If you have bad credit, check out our credit repair services. We can help you dispute inaccuracies to increase your credit score to where it deserves to be.