Improving your credit score
Learn how to improve your credit score. Learn why the way you manage borrowed money affects your ability to get credit and loans. A higher credit score may help you get better interest rates.
Paying your bills on time
Your payment history shows how often you pay your bills on time. It’s the most important part of your credit score.
To improve your payment history:
- always make your payments on time
- make at least the minimum payment if you can’t pay the full amount
- contact the lender right away if you think you'll have trouble paying a bill
- don't skip a payment even if you’re disputing a charge
A strong payment history tells lenders that you repay money reliably.
Get electronic alerts
Your financial institution may alert you when:
- your available credit falls below a set amount
- a payment is due
These alerts may help you keep track of your spending and avoid missed payments.
Learn more about your right to receive electronic alerts.
Using your credit wisely
Your credit utilization rate, also called your credit use, shows how much credit you use compared to your credit limit.
Tip
Try to use less than 30% of your total credit limit. For example, suppose your credit card has a $5,000 limit and you normally use $1,000. Your credit utilization rate is at 20%.
To manage your credit utilization rate effectively:
- don’t go over your credit limit
- aim to have a higher credit limit and use only a small portion of it
- keep your monthly credit utilization rate low, even if you pay the full balance
Lenders look at your credit utilization rate to judge how you manage your available credit. If you regularly use a lot of your available credit, they may see you as a higher risk. This may happen even when you pay off your debts in full every month. Low credit use shows lenders that you don’t rely too heavily on borrowed money.
Improving your credit history
Your credit history includes how long you’ve had credit accounts and if you keep them active. Lenders want to see a long and stable credit history. Keeping your accounts open and active for a long time may help improve your credit score.
Example
If you open a new credit card to transfer a balance, it counts as a new account. This may reduce the average age of your accounts and lower your credit score. If you close the old account, it may hurt your credit score even more.
Closing an older account makes you:
- lose older credit history
- reduce your available credit
Keeping the old account open, even with a zero balance, helps you:
- maintain your credit history
- improve your credit utilization rate
Consider keeping an account open if:
- it doesn’t have annual fees
- it’s easy for you to manage
- you can use it occasionally to keep it active
Limiting how often you apply for credit
Credit inquiries, also called credit checks, affect your credit score. When a lender checks your credit report, the credit bureau records the inquiry. They include it on your credit report.
It’s normal to apply for credit occasionally. However, too many credit inquiries made too close together may make lenders think that you’re:
- urgently seeking credit
- spending beyond your means
To limit credit inquiries:
- only apply for credit when you need it
- avoid sending multiple applications at once or too close together
- when shopping for a car loan or mortgage, get quotes from different lenders within a 2-week period. Credit bureaus treat these as 1 inquiry
Understanding credit inquiries
Hard inquiries, also called hard hits, are credit checks that appear on your credit report. They affect your credit score. Anyone who views your credit report will see these inquiries.
Examples of hard inquiries include:
- credit card applications
- mortgage applications
- credit and loan applications
- some rental applications
- some employment applications
Soft inquiries, also called soft hits, only appear on the version of your credit report that you can see. They don’t affect your credit score.
Examples of soft inquiries include:
- requesting your own credit report
- a company checking your credit report to update their records for an existing account you have with them. For example, internet, or telephone companies
Using different types of credit carefully
Your credit history includes the different types of credit you use. You may have a lower credit score if you only have 1 type of credit product.
It's better to have different types of credit, such as:
- a credit card
- a car loan
- a line of credit
Tip
Lenders want to see that you can manage more than 1 type of credit responsibly. Only borrow money you're able to pay back. Taking on too much debt may harm your credit score.