Your credit score is usually a reflection of negative spending habits from the past, or if you are relatively young, more likely it's simply a lack of credit history altogether.
But the important thing to focus on is this: regardless of what got your credit to where it is today, there are some steps you can take to boost those numbers.
If you need to learn how to build a credit score, check out these five ways you can boost your score right now.
Start At The Beginning
This maybe goes without saying, but it's hard to improve your score if you don't even know what it is. Getting your score is easier than ever (and free), so start off by getting a copy of your credit score and report.
Scores change every 45 days or so, so if you haven't gotten your score in a while, just get it again.
Understand Your Score
The first step in boosting your credit score is understanding the main factors that are affecting it.
The Length of Your Credit History
This refers to the amount of time you have had open credit accounts. Essentially, the more experience you have with credit, the better – credit cards, student loans, personal loans, and auto loans all count. The length of time your accounts have been open plays a large role. The longer you have had accounts in good standing, the better your score will be.
If you make regular on-time payments, your payment history will have a positive influence on your score. Lenders obviously dislike unstable payments, and having a history that is erratic can have a negative impact on your overall score. In this area, focusing on making regular payments is more important than always paying off your bill in full – in other words, missed payments are far worse than partial ones.
This is a measure of the amount of credit you have available relative to the amount you owe, or how much you use, is referred to as your credit utilization.
For example, if you have a credit card with a $1,000 limit and you owe $500 on it, your utilization would be at 50%. If your utilization is too high, it may signal to a lender that you are having trouble handling the level you have. On the flip side, if it's too low, it can also cause some lenders to think twice – why do you have so much credit if you don't need it?
Pay Your Bills On Time
As we just mentioned, when it comes to changing those numbers, one of the most important factors is your payment history. If you are learning how to build a credit score, it's important that you pay all of your bills on time, consistently, and regularly.
Late or missed payments will show up on your credit report and over time can have a big impact on your score. Consider setting up automatic payments, even if it's just for the minimum amount, to avoid having this affect you.
3. Keep Your Utilization Low
Remember, as mentioned earlier, your utilization is the amount of credit available to you vs the amount you owe. You want to try to keep all of your accounts around 15-30% utilization.
Paying down your accounts is the best way to do this but if you are looking to boost your score right away, consider applying to raise your credit limit, which in turn will lower your utilization percentage.
4. Dispute Any Inaccuracies
It's possible that your report may have mistakes, so it's important that you check your credit report for accuracy. Believe it or not, the Federal Trade Commission reports that one in five people find an error in their reports.
These errors can be unknowingly bringing down your score. If you find an error it's important you dispute the error with a credit reporting company.
5. Keep Paid Off Accounts Open
Many people that are trying to get out of debt think that once they pay off an account they should close it.
This is complicated, as it can actually negatively affect your score, depending on your utilization. If you close an account you are also lowering your available credit. So once you have paid off an account it is actually best to keep it open for a little while. If your utilization falls below 15%, you can consider closing the account.