Your credit score is a three-digit number that can have a big impact on your financial life. It’s a metric that provides lenders with a snapshot of your creditworthiness. Whether you’re applying for a mortgage, car loan, credit card or any other form of credit, a poor credit score may suggest that you’re a risky borrower. As a result, you could get stuck paying higher interest rates — or worse, be outright declined for new credit.
Fortunately, your credit score isn’t set in stone. Life happens, and there are many reasons why your credit may have taken a hit. What matters most is being intentional about turning things around. The average FICO Score, which is generated by a leading credit scoring model, comes in at 711. That’s considered a good score, but if you’re not quite there yet, don’t worry. Read on for four simple ways to improve your credit score.
How to check your credit
To effectively boost your credit score, you’ll first need to understand what’s weighing it down. Your credit reports are a great resource that should bring things into focus pretty quickly. There are three major consumer credit bureaus (Experian, Equifax and TransUnion). Credit activity is generally reported to all three. This includes your payment history and account balances, along with delinquent accounts. When you pay your creditors, they report it to the bureaus — and each agency maintains its own credit report for you. You can check all three at no charge by visiting AnnualCreditReport.com.
Your credit score is determined by the information on your credit reports. You can check your FICO Score a few different ways. Experian offers it for free. Many credit card companies, like Discover and American Express, also provide it as a free perk for account holders.
FICO Scores are broken down this way:
- Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very good: 740-799
- Exceptional: 800-850
Factors that affect your credit score
When it comes to determining your credit score, there are a lot of moving parts at play. Some factors carry more weight than others, but it basically comes down to maintaining healthy financial habits and demonstrating that you know how to use credit responsibly. Here’s how FICO calculates your score
- 35% Payment history: Do you pay your bills on time?
- 30% Amounts owed: Are you using a lot of your available credit limit?
- 15% Length of credit history: Do you have a thin credit file because you’re just beginning to establish credit?
- 10% Credit mix: Do your open accounts reflect a mix of different types of debts? Examples include credit cards, student loans, a mortgage, a car loan, etc.
- 10% New credit: New credit inquiries affect your score and stay on your credit report for two years.
What is a Good Credit Score?
How to improve your credit score
- Periodically check your credit reportKnowledge is power. Understanding what’s on your credit report is key because it provides a road map for what you can improve. When reading it over, keep in mind the factors that affect your score. This can help you create a game plan for making positive change. Also keep an eye out for errors — it could be a red flag for identity fraud. If you see accounts you don’t recognize or your balances seem higher than they should be, do some digging around to find out what’s going on. You can dispute errors and have them removed from your credit reports.
- Pay all your bills on timeMaking on-time payments is the best thing you can do for your credit. Remember, it accounts for 35% of your score — and a single missed payment can linger on your credit report for up to seven years. Setting up automatic payments is a great set-it-and-forget-it approach. Just be sure you have the funds available in your checking account when the due dates roll around. DailyPay can help here, allowing you to access your earned pay when you need it.
- Reduce your balances on revolving accountsA revolving account is one that you can charge up and pay off as you go. (A credit card is a great example.) In a perfect world, we’d all pay off our balances in full each month and avoid interest charges, but life isn’t always so simple. If you are carrying balances, try to get them down below 30% of your credit limit. Keeping them above that threshold can drag down your score.
- Leverage new accountsIf you’re a credit newbie, your score might be on the lower side simply because you don’t have much credit history. If this is the case, consider opening a new credit card in your name — then using it to cover regular monthly bills before paying off the balance at the end of each billing cycle. This should help bring your credit score up. If you don’t qualify for a traditional credit card, a secured credit card can be a great workaround. It works just like a regular card, except that you pay an upfront security deposit that you’ll get back later if you demonstrate responsible payment habits.
Improving your credit may take time, but adopting these healthy financial habits can help you get there. DailyPay is here to provide on-demand pay when you need it most