How to improve your credit score, according to experts

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It’s no secret that you need a solid credit score if you want a popular credit card or a good rate on a loan. But earning a good credit score – usually 670 or higher in the popular FICO model used by most lenders– can take work.

And with so many tips out there, it’s hard to know what’s really effective. That’s why we asked three credit experts what they think about common credit score tips and how you can really get the most out of it.

Tip: Reduce your “credit utilization ratio”

How it can help: Building your credit can take time. However, working on your utilization rate can provide faster results. Using credit affects the “amounts owed” component of your FICO score, responsible for 30% of your score.

A credit utilization rate is the percentage of available credit that you are using. For example, if you have a balance of $300 on a credit card with a limit of $3,000, your credit utilization rate is 10%. Conventional advice is to keep this number under 30% to avoid damaging your credit.

Two ways to do this are to apply for a higher credit limit or to get another credit card. In the above scenario, if you doubled your credit limit or got an additional credit card with the same credit limit, your credit usage would drop to 5%.

What the experts say: Experts agree that getting more available credit can indeed help your credit utilization and credit scores. If your spending stays the same and your credit limit increases, your credit utilization rate will decrease. You may see positive changes to your credit as soon as your new credit limit appears on your credit report.

However, this approach only works if you don’t increase your spending. In fact, many people will spend more when given more credit, says Kenneth Chavis IV, a financial planner at wealth management firm LourdMurray in Los Angeles. This will likely offset the benefit of a higher line of credit and put you in more debt.

To avoid falling into this trap and going over the 30% threshold, always keep an eye on your balance, advises Beverly Harzog, author of five books on credit and personal finance.

“Let me give you one more insider tip real quick,” she adds. “If you really want to dramatically increase your score, keep your ratio below 10%. People, myself included, who have scores over 800, that’s what we do.

Tip: Pay your bills on time

How it can help: If there is one thing you should not do to your credit, a payment is missing. Payment history is responsible for 35% of your FICO score, more than any other factor. A late payment is reported when you miss the due date by at least 30 days and can cause your credit score to drop significantly. Plus, it will stay on your credit report for seven years. For this reason, you want to make sure you always pay your bills on time.

What the experts say: There is no denying the importance of on-time payments. All the experts we spoke to recommend using automatic payment and setting reminders, as well as paying off the balance before the statement closing date.

Yanely Espinal, Director of Education Outreach at Next Gen Personal Finance, a nonprofit organization offering a personal finance program to middle and high school teachers, has automated all of its bill payments. It also makes additional payments before the statement closing date, the last day of a billing cycle, instead of waiting to pay the full balance on the due date.

The balance at the statement closing date is what a credit card company reports to the credit bureaus, so you want it to be as low as possible. By making additional payments during the billing cycle, when Espinal’s account statement arrives, his closing date balance is low. This “helps me keep my credit utilization rate very low,” she says.

To make sure you don’t forget to pay, set up email reminders or other alerts, suggests Harzog. “I use Mint, so I get alerts when a payment is almost due,” she says.

You can also set up free text or email alerts with your credit card company to remind you when your bill is due. Finally, you might want to consider automatic payment. With this service, your card issuer will deduct the payment from your linked bank account. This can be very convenient, but be careful: you should always make sure you have enough money in your account to cover credit card payments.

Tip: Pay off your debts

How it can help: You can reduce the amount you owe by paying off your debt. This includes not only your credit cards, but also your installment loans, such as a car loan or mortgage.

Reducing your card and loan balances will benefit your credit by reducing your credit utilization rate and overall debt. Not to mention, it can also be great for your overall finances. The faster you pay off a debt, the less interest you will pay.

What the experts say: While paying off debt is good for your credit, if you pay off an installment loan in full, such as a car loan or student loan, it can cost you credit points. This happens because paying off an installment loan means you will have one less account reporting on-time payments to offices.

“It might hurt a bit, but paying it is going to be really nice,” says Espinal. “Don’t let that deter you from making aggressive payments.”

Chavis also suggests prioritizing paying off expensive debt, which he considers anything with an interest rate of 7% or higher. This typically includes credit cards, personal loans, and auto loans.

That said, it’s important to choose an approach that works for you. For people with high credit scores and high-interest debt, debt consolidation through a balance transfer card or personal loan might be a good choice. Those with lower credit, on the other hand, might not qualify. Others may benefit from popular debt repayment methods, such as the avalanche (pay off the debt with the highest interest rates first) and the snowball (prioritize the smallest debt first). Whichever method you can stick to is best for you.

Tip: Get credit for rent payments

How it can help: It’s ironic that even small credit card purchases can impact your credit, but paying some of the biggest recurring expenses, like rent, won’t.

Fortunately, there are options for rent payments to count towards your credit. Services like Hire reporters and LevelCredit allow you to add rent payments to some of your credit reports for a fee, usually between $7 and $15 per month.

What the experts say: Experts say adding rent payments to your report can be helpful, especially if you’re new to credit or rebuilding it.

Note, however, that most services that offer to report rent payments to credit bureaus do not work with everyone. For example, Rent Reporters, Move the score, CreditMyRentand Karma Rental report only to Equifax and TransUnion.

Even if rent appears on your credit report, it may not affect your scores because not all credit scoring models include rent payments in credit score calculations. Because of these drawbacks, Espinal suggests considering other ways to add positive information to your credit report. Some of the easiest options are to become an authorized user on a family member’s credit card or to apply for a secured credit card, which involves depositing money with the card issuer. credit.

Still, if you’re new to credit or rebuilding your own, rent payments on your credit reports can benefit you even without affecting your scores. A credit rating is just one of the factors considered by lenders. They are also likely to review your payment history to assess your degree of responsibility for your financial obligations.

“A potential lender might see that and be like, ‘OK, they’re paying their rent on time…’ And that’s a plus for you,” Harzog says.

Tip: challenge errors in your annual report

How it can help: It’s one thing to pay for your own credit mistakes with lower scores. It’s another to pay for mistakes on your credit report.

You can check your credit reports to make sure everything looks correct. You have the right to obtain a free copy from each credit bureau (Experian, Equifax and TransUnion) once a year from AnnualCreditReport.com. Plus, until December 2022, you can get a free report from each office every week.

What the experts say:This one is all over YouTube and social media,” says Espinal. “People love to say, ‘Oh, I can help you with these disputes and have all this information erased from your credit report.'”

In reality, filing disputes with the credit bureaus is not a magic trick. Everything you submit will be investigated to ensure that what you claim is true. There is no way to remove the correct information from your credit report unless it has been there too long. Most negative ratings should disappear from your credit reports after seven years.

That said, legitimate mistakes on your credit can be worth challenging. For example, if you find a late payment on your credit report, but you know you paid on time, you may want to dispute and provide proof, such as a statement of when you made the payment.

Another type of mistake that can wreak havoc is a mistake in personal information.

“Let’s say your social security number is wrong on your credit report and your credit is mistaken for someone else,” Harzog says. While this won’t lower your score, it could cause problems when a lender reviews your report to verify your identity. It is also wise to check if any new accounts have been opened in your name. If they don’t belong to you, it’s a red flag for fraud. In this case, you will need to take steps to protect yourself, including placing a fraud alert or credit freeze on your reports.

Any advice, recommendations, or rankings expressed in this article are those of the WSJ’s Buy Side Editorial Team, and have not been reviewed or endorsed by our business partners.

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