Your credit score has enormous power over your life. The three-digit number can open many doors, including helping you rent an apartment and giving you access to a higher tier of rewards credit cards.
But if your credit score is below average — Experian classifies 300-579 as “poor” and 580-669 as “fair” — that can hold you back, too. Having worse credit will give you higher interest rates on loans, which will cost you extra money.
Luckily, there are things you can start doing in January that will help boost your credit score throughout the year.
From checking your credit report for errors to getting a new credit card to help lower your credit utilization rate, here are three ways to improve your credit score in 2022.
1. Check your credit report for any errors
The first step to raising your credit score is to make sure there are no mistakes that are dragging it down. To do this, ask for your credit report. Currently, individuals are allowed to view their reports from each of the three major credit bureaus – Equifax, Experian and TransUnion – free of charge each week until April 20, 2022.
“People would be really surprised at how often mistakes are made on their credit report,” says Matt Schulz, credit card expert at LendingTree. “And the only way they’ll find out, chances are, is to take a look at their report.”
Errors can range from open accounts that don’t belong to you to missed payments that don’t belong to you. If you have a common name, check that your data has not been confused with someone else’s.
“Having good credit is hard enough,” says Schulz. “The last thing in the world you want is to be paralyzed by someone else’s mistake.”
If you spot an error, report it directly to the office. Follow these links to report an error to Equifax, Experian and TransUnion.
2. Improve your credit utilization rate
One of the most important factors in your credit score – accounting for up to 30% of it – is your credit utilization rate. This is the percentage of your line of credit that you are using. For example, if you have $10,000 of available credit and you place $5,000 in purchases on your credit card this month, that represents a credit utilization rate of 50%.
The lower you can get this number, the more it will help your credit score. “The golden rule is to work towards 10% [or less]“, says Nirit Rubenstein, CEO of credit repair company Dovly. “You will get the most credit if you are below this threshold.”
To improve your credit utilization rate, start by trying to reduce your expenses and pay off your balance on time and in full. Plus, you can lower your rate by signing up for an additional credit card. This will increase your overall credit limit and turn your spending into a lower percentage.
However, it is not the best option for everyone. Evaluate whether or not you can responsibly open another card first. But, “if you’re someone who can manage that card wisely, it will improve your credit score,” Schulz says.
At the same time, avoid closing credit cards that you are not using. This will lower your credit limit and increase your usage rate. If a rarely used card has an annual fee, call the issuer and ask to be downgraded to a free card instead.
3. Start as soon as you can
While a missed payment can quickly drop your score, it takes a little longer than that to fix. That’s why it’s important to start positive habits as early as possible and maintain them throughout the year.
“Most credit situations can be resolved within six to 12 months,” says Shannon McLay, Founder and CEO of The Financial Gym. “We’ve seen credit shifts of 30 to 100 points happen over this period.”
If you start the year with a higher credit score and want to make it exceptional, it’s likely going to be harder to see a big gain over the same period than someone with a lower score.
“It’s actually easier to go from 620 to 720 than to go from 720 to 820,” says Rubenstein.
Either way, the best thing to do is to start early.
“The more you can show a positive and consistent payment history, the better,” says Rubenstein. “These things are going to help you build your credit.”
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