A good credit score is more important in today's economy than ever. Think about it: whether you want to buy your dream home, get a new car, or even just turn on the lights without a considerable deposit, your credit score plays a significant role.
Your credit score is like a report card for your financial habits. Even though most of the details of your credit history are private, your credit score, often determined by major credit bureaus like Equifax, Experian, and TransUnion, shows the world how well you handle money. It reflects your payment history, how much debt you have, and more.
Why is this number so important? It's your ticket to financial opportunities. It affects your ability to get loans, rent places, use utility services without significant deposits, find good insurance rates, and even make a solid first impression at a new job. Having a healthy credit score is key.
But don't worry! Improving your credit score isn't as hard as you might think. To help you build your credit, we’ve assembled nine clear strategies, from basic steps like paying bills on time to smart moves like using rent reporting tools. Dive in, use these tips, and start your path to better finances.
What is a credit score?
Your credit score is typically a number between 300 and 850, and it’s used to predict the likelihood of you repaying a loan on time. A higher credit score shows a lower risk of defaulting on credit payments, while lower credit scores indicate a higher risk. Credit bureaus calculate this number using scoring models, such as FICO and VantageScore, in conjunction with information from your credit report. The factors that go into this calculation include:
- Your bill payment history.
- Current unpaid debt.
- How many and what types of loan accounts you have.
- The length of time your loan accounts have been open.
- Your credit utilization (i.e., how much of your available credit you’re using).
- Your new applications for credit.
Each credit bureau has criteria for determining a good or excellent credit score. Still, generally, credit scores between 670 and 739 are considered good, those ranging from 740 to 799 are very good, and 800 or above is excellent.
That said, multiple credit scores are available to you — and lenders — because this score depends on the data used to calculate it, the scoring model, the source of your credit history, the day it was calculated, and many other factors.
In other words, your credit score reflects a single moment and can fluctuate based on your credit behaviors and data from your credit reports. It's not set in stone and requires ongoing monitoring and financial responsibility.
Understanding your credit report and its impact
A credit report offers an in-depth overview of an individual's credit history, encompassing vital details about credit card accounts, payment history, and credit inquiries. This comprehensive document sheds light on your financial behaviors, from revolving credit to loan repayments.
Financial establishments, like banks and other lenders, rely on this information to gauge your creditworthiness. It aids them in making crucial decisions, such as whether to greenlight a loan application, grant a credit card, or introduce you to tailored financial offerings.
Your credit score, a numerical representation of your financial trustworthiness, is derived from the data in your credit report. Monitoring this report is paramount. Errors, late payments, or unauthorized credit inquiries can unjustly dent your score. Regularly reviewing and rectifying discrepancies ensures your credit score remains a true reflection of your financial diligence.
Why does a good credit score matter?
This number is a track record of your ability to borrow money and pay it back within the right time frame and agreed-upon terms.
A high credit score demonstrates that you are a trustworthy person to lend to, particularly if you borrow money frequently and always pay it back in full and on time each month. The higher your credit score, the more reliable you are in the eyes of lenders, and the easier it will be to get approved for new loans or lines of credit in the future.
Some of the most common situations where your credit score impacts your life include:
- Requesting a home or automobile loan: Depending on your credit score (among other factors), lenders can approve or deny you a loan or charge you a higher or lower interest rate. This is true for people trying to get a mortgage, auto, or personal loan.
- Renting a home or apartment: For many landlords, a tenant's credit score is a window into their financial stability and an indicator of what kind of tenant they will be when paying rent. A good credit score signals they can be trusted to pay monthly rent on time.
- Utility services: Many utility providers check your credit score before approving your request to set up gas, electricity, or water services in your name to ensure that you can pay your bills on time. If you have a low credit score or a history of missed payments, the utility company may require you to pay a deposit before they activate your services.
- Applying for a credit card: If you apply for a new credit line, you must meet the card issuer's minimum criteria for income and creditworthiness, including a high enough credit score. If you don't, you may be denied from opening a new credit card.
- Buying insurance: A high credit score can potentially lower your premiums on various types of insurance. Better credit can decrease car insurance rates with many insurers in most states.
- Starting a new job: While employers can't see your credit score when they run a credit check, they have access to similar information to lenders. Sometimes, they may look at your open lines of credit, outstanding balances, loans, late or missed payments, and more to determine whether you are financially responsible.
All this is to say: almost all of your most important financial decisions involve your credit score. That's why increasing your credit score and proving your trustworthiness to lenders is essential.
How often should you check your credit score?
Monitoring your credit score and credit report regularly is recommended — ideally at least once a year. This practice ensures that no errors, missed payments, or fraudulent activities affect your credit history. Every individual is entitled to a free copy of their credit report annually from each of the three major credit bureaus — Equifax, Experian, and TransUnion — by using services like AnnualCreditReport.com.
If you're gearing up to make a significant financial move, like applying for a credit card or loan, or if you've recently faced major financial events such as bankruptcy or foreclosure, it's wise to check your credit score more often.
By diligently tracking your credit score and staying informed about the contents of your credit file, you not only improve your creditworthiness but also protect yourself against potential identity theft and other credit-related scams.
9 strategies to raise your credit score
While it may seem daunting, improving your credit score can be simple with the right strategies. Here are a few ways to stay on top of your finances and strengthen your credit score:
1. Pay bills on time
Paying bills on time is the most effective way to raise your credit score because it shows lenders and service providers they can depend on you. To stay on top of your bills and avoid missing payments, you can set up automatic payments, add due dates to your calendar, or send reminder notifications to your phone.
You should also monitor your checking account to ensure you have enough cash to pay bills and credit card balances in full.
2. Check your credit report for errors
Checking your credit report regularly for errors is important in maintaining a good credit score. Errors in your credit report can negatively impact your score and may result in higher interest rates or even denials of credit applications.
Inaccurate information on your credit report could include accounts belonging to someone else, incorrect personal information such as your name or address, or an inaccurate record of late payments.
3. Use credit cards responsibly
While regularly using a credit card helps you build your credit history, it's best to focus on reasonable, everyday purchases like groceries or gas rather than significant expenses you can't afford to pay off. Being responsible means paying off your monthly balance on time and using your credit consistently — in other words, not overspending. The bottom line? Try to avoid spending money you don't have.
4. Build your credit file
Lenders want to see your history of using credit and paying it back. For this reason, it's essential to start building your credit history now if you haven't already. Start with one credit line, such as a credit card, and focus on using it frequently for everyday purchases, then paying it back in full at the end of the month. Once you get in the habit of using it responsibly, you might consider opening another line of credit.
5. Diversify your credit
Having a mix of credit accounts demonstrates that you can responsibly manage different kinds of debt. However, it's important only to take on debt you can afford to pay back on time, as missed or late payments will harm your credit score.
6. Use rent reporting tools
Another great way to improve your credit score if you rent your home is by leveraging rent reporting tools. Azibo Credit Boost allows renters to report their on-time payments to major credit bureaus. This enables individuals to boost their credit score with rent payments, a major monthly payment typically not included in credit reports.
The payoff is significant: in a large-scale Credit Builders Alliance-sponsored pilot program, 97% of participating residents stated that reporting their on-time rent payments was an effective way for them to build their credit. Azibo Credit Boost offers a two-month free trial, then costs an affordable $4.99 monthly to report your payments to TransUnion and Equifax.
7. Try Experian Boost
This service adds positive payment history from your utility bills, such as your phone, water, and electricity, to your credit report. This can benefit those with a limited credit history or just starting to establish credit. By showing a positive credit history through paying these types of bills on time, you can demonstrate your ability to manage credit responsibly and potentially increase your credit score. Renters can use Experian Boost with Azibo Credit Boost to maximize multiple strategies to improve their credit score.
8. Become an authorized user
Another option for people who still need to build a strong credit history is to ask a responsible family member to add them as an authorized user on their accounts. This means that the primary cardholder agrees to add you to their account, and you benefit from their responsible credit behavior and payment history. While this is only a temporary solution, it can be a good start if you’re at the beginning of your credit journey.
9. Leave old accounts open
Contrary to popular belief, closing a credit card account can lower your credit score even if you've paid off your debts. Why? When you close a longstanding account, your maximum credit limit across your lines is lower, and your credit history may be shorter. So if an old account has been paid in full and on time, there's no need to close it, even if you don't use it.
How long does improving your credit score take?
Improving one's credit score is a process that varies greatly depending on the specific circ*mstances. Here's a general overview for a few common scenarios:
- Minor fluctuations: If you want to recover from a minor misstep, like a single late payment, your score could rebound in as little as one to two months once the issue is addressed and the creditor reports the correction.
- Credit card utilization: One of the faster methods to improve a credit score relates to credit card utilization. If you pay down your credit card balances, thereby reducing your utilization rate (i.e., the percentage of your available credit that you're using), you could see score improvements within a month or two.
- Hard inquiries: When you apply for credit, a hard inquiry is recorded on your credit report. This can decrease your score slightly. Hard inquiries stay on your report for two years, but their impact diminishes over time and usually becomes negligible after about a year.
- Major delinquencies: More serious issues, such as missed payments, can remain on your credit report for up to seven years. However, their impact on your credit score decreases over time, especially if you maintain consistent, positive financial behavior in the interim.
- Bankruptcies and foreclosures: Some of the most significant negative marks, like bankruptcies or foreclosures, can take several years to recover. A Chapter 13 bankruptcy, for instance, remains on your credit report for seven years, while a Chapter 7 bankruptcy stays for ten years. Recovery in these cases can be a longer-term process, and improvements may be gradual over the years.
- Building credit from scratch: For those new to credit, it can take six months to a year of positive credit activity (like timely payments on a credit card or loan) to establish a decent score.
Ultimately, the time it takes to improve a credit score can range from a month for minor issues to several years for major derogations. The key is to stay informed, consistent, and proactive in managing your financial responsibilities.
How long do derogatory marks stay on your credit report?
Derogatory marks on your credit report are negative items that can adversely impact your credit score. These marks vary in terms of their severity and the duration they remain on the report.
Late payments, for instance, usually stay on your credit report for 7 years from the date of the missed payment. This can happen to anyone, especially if they forget a due date or face a temporary financial crunch.
Bankruptcies are more severe and can linger on your report for extended periods. A Chapter 7 bankruptcy involves liquidating assets to pay off debts and remains for 10 years from the filing date. On the other hand, a Chapter 13 bankruptcy, where you establish a repayment plan, stays on your report for 7 years from the filing date. Since the bankruptcy process often spans 3-5 years, the negative mark can stay for up to 10 years.
Marks like foreclosures and collections also stay on your credit report for 7 years. While foreclosures indicate a default on mortgage payments, leading to the lender taking possession of the property, a person is sent to collections when a debt remains unpaid, and the creditor hires a collection agency to recover the amount. Similarly, charge-offs, where the creditor gives up on the payment and declares it a loss, remain for 7 years.
Tax liens can be a bit more complicated. If unpaid, they might remain indefinitely. If paid, they should be removed 7 years from the payment date. With recent changes in credit reporting rules, though, tax liens are often excluded from consumer credit reports.
Repossessions occur when a lender takes back an item or property due to missed payments, and they remain on one’s credit report for 7 years.
Hard Inquiries are slightly different, as they're the marks made when a lender checks your credit for loan or credit card applications. These stay for 2 years, but their effect on the credit score usually reduces over time.
Lastly, judgments used to remain on a credit report for 7 years from the date filed, regardless of their payment status. However, with recent updates to credit reporting, many civil judgments are no longer included in credit reports.
Boosting your credit score and financial standing with Azibo
Your credit score, a vital metric of your financial health, can often seem overwhelming to improve. However, the path to a stronger credit standing becomes clearer with steady effort, patience, and informed decisions.
One invaluable tool in this journey to build credit is Azibo Credit Boost. You can activate the Credit Boost feature by simply creating or logging into your Azibo account and choosing the payment plan that's right for you. This action allows Azibo to start recording timely rent payments, bolstering your score.
Remember, while the road to an improved credit score may seem daunting, you are not alone. Numerous resources, including intuitive platforms like Azibo, are designed to guide and assist you. You can make significant strides in your financial journey by taking regular, small steps, such as paying bills promptly, managing your debts wisely, and keeping an eye on your credit report.
It's essential to understand that your credit score is not fixed; it evolves based on your financial behaviors. With dedication, the right strategies, and tools like Azibo, you’ll be well-equipped to navigate the complexities of credit building and lay the foundation for a secure and prosperous financial future for you and your loved ones.
Credit score FAQs
How can I raise my credit score in 30 days?
It's important to understand that raising your credit score in such a short period may be difficult.
However, you can try a few strategies to help boost your credit score quickly. First, you should ensure you're paying all your bills on time, as payment history is the most crucial factor affecting your credit score.
Next, pay down any outstanding debts, particularly on credit cards, as high credit utilization can hurt your score. Another option is to ask your credit card company to increase your credit limit, which can lower your credit utilization ratio. Finally, you can dispute any errors or inaccuracies on your credit report, which could help improve your score if corrected.
Remember that it's essential to maintain good credit habits over time to see a lasting improvement in your credit score.
How can I boost my credit immediately?
Boosting your credit score quickly requires strategic actions. Here are some immediate steps you can take:
- Pay down balances: Lowering your credit card balances can decrease your credit utilization ratio, positively affecting your score.
- Request a higher limit: Ask your credit card provider for a credit limit increase, improving your utilization without a new inquiry.
- Become an authorized user: Join a responsible family member's account to benefit from their excellent credit history.
- Dispute errors: Check your credit reports for mistakes and dispute any inaccuracies with the respective credit bureau.
- Settle debts: Pay off or negotiate settlements for any outstanding debts, especially those in collections.
Consistent long-term financial habits are the key to a lasting high credit score, but these steps can help give you a quick boost.
How can I improve my 700 credit score?
A score of 700 is considered good by most credit bureaus, so you're already on the right track.
To further improve your score, you can focus on maintaining healthy credit habits such as paying your bills on time, keeping your credit card balances low, and avoiding new credit inquiries.
When you already have a good credit score and consistently pay your bills on time, adding new credit accounts to your credit mix can help diversify your credit portfolio and improve your score. It's also essential to review your credit report regularly and dispute any errors or inaccuracies that could negatively impact your score.
You can continue strengthening your credit score and financial standing by consistently practicing good credit habits and monitoring your credit report.
