Lenders and credit granters use your credit score to figure out how likely you are to pay them back. Lower credit scores mean a higher risk of not being paid on-time, which means higher rates or security deposits for you. Higher credit scores provide added confidence that you will responsibly pay your rent or bills under the terms you agree upon. Your credit score is an objective, non-discriminatory method for someone who doesn’t personally know you to gain trust in doing business with you.
Not quite sure how your credit score works, and how you can positively impact it? Check out our myths and facts about credit reports to learn more about how your credit score functions.
To get started, here are 5 ways you can boost your credit score to improve your odds of being approved:
1. Payment History
If you haven’t paid previous bills, or paid them on-time, future businesses or landlords reviewing your credit will wonder whether or not you’re going to pay them. If you’ve got a history of missed and late payments your credit score will drop, and unfortunately even one missed payment can put a significant dent in your score. There is no quick fix here. A poor payment history can hang around for up to 7-years, although many credit reports look at the last 24 months. Start making full payments on-time as soon as you are able and be patient – your score will go up if you’re consistent.
2. Keep Credit Utilization Low
As a consumer, you have various credit limits extended by different lenders. These lenders might be associated with your credit card companies, auto loans, personal loans, or other extensions of credit. Your credit utilization ratio is calculated based on how much credit you have versus how much credit you’re using. If a potential lender sees that you’re approved for $10K by a lender and you already owe that lender $9K, they will consider you a higher risk to lend money too. Try to keep your credit ceilings as high as possible, but don’t utilize much of that credit.
3. Experian Boost
Credit scores are complex calculations of various payment histories, and so changing your credit score usually takes a lot of patience. But sometimes, you can find tools that can instantly boost your score by adjusting the information that is used to calculate it. Enter Experian Boost, a new tool that allows you to get bonus points for your phone and utility bills – both of which are not automatically reported despite them being some of the most common bills for consumers. The average Experian Boost user raised their Fico Score by 8 to 13 points, just by including some additional accounts with a good payment history.
All you have to do is connect to the account you pay your phone, gas, or electric bill through, and then sit back as the points go up if your bills have been paid on time. You’ve paid your phone and utility bills. Get credit for them!
4. Don’t Shop Your Credit Around
Applying for new lines of credit adds inquiries to your credit report. Lenders can see how many credit inquiries that you’ve made for the last couple of years, and this can make you look as if you’re extending your credit too much which increases your risk. When you need to review your credit report there are two easy ways around this:
- annualcreditreport.com will provide a free copy of your report once every 12 months. It won’t include your FICO score, however, you can pay a small fee if you want to include it.
- Consumer-Initiated reports are a newer process in which you verify your information yourself, purchase your own report, and then authorize to have it shared with whomever is requesting to review it. In this process the credit bureau(s) consider the report a “soft-inquiry”, and your credit score remains unaffected
You have more control over your credit than you think. In addition to receiving a free report every year from the major credit bureaus, you can also dispute any errors or mistakes that show up. Credit reports are not mathematical laws dropping out of the sky! They’re reports assembled by real businesses submitting your payment history which then get processed using algorithms, and they can have mistakes. Every major credit bureau has a consumer disputes section on their website, or a phone number you can call, and they are legally obligated to address your claim and make corrections within a reasonably short period of time.
Need help reading your credit report? Check out our guide to understanding credit reports.