Updated for November, 2023
What is a Credit Score?
A credit score is a number used to measure your credit history. Your credit score can change on a regular basis based on things like paying off your credit card, opening a new credit card, or paying off loans. A credit score is most often the factor that lenders will consider when analyzing how risky it is to loan you money. It’s important to maintain good credit if you want to apply for a loan, get a mortgage, pay utilities, or even rent an apartment. So what if your credit is low? And how do you raise your credit score? Let’s read on.
How is a Credit Score Measured?
A credit score can range anywhere from 300 (poor) to 850 (excellent). The average credit score in the US in 2021 is about 698. The higher your credit score is, the less risky you appear to be to lenders.
People with poor credit will often find it difficult to get good interest rates on credit cards or loans, or may not even qualify at all. On the flip side, people with good credit will have access to more benefits including favorable rates which will save them money.
How to Raise Your Credit Score
So what can you do to raise your credit score? Do you have control over your rating? The short answer is yes. It won’t happen overnight, but over time if you pay attention to these key factors, you’ll be able to increase your rating:
- Paying bills on time
- Increasing your credit limit
- Look into debt consolidation
- Opening more lines of credit
- Making frequent payments
Paying Bills On time
This one is self explanatory. Paying all bills on time over time will raise your credit score. Payment history is the single biggest factor that affects credit scores. Your payment history makes up about 35% percent of your credit score. It can be helpful to set up alerts before your bills are due so you avoid accidentally missing payments. You can also automate your bills, but just make sure you have the money in your account to cover them.
Increasing Your Credit Limit
The higher your overall available credit is, the less of it you use each month which will result in raising your credit score. There are two main ways to increase your credit. You can either ask your bank for a higher credit limit, or open a new card. If you’ve ever heard the term “maxing out” your credit card, that means spending up to the limit you have available. Not good!
Check your limit either online or through your bank. Opening a new credit card will also technically increase your overall credit limit which will have a positive effect on your credit score.
There could be a temporary drop in your credit score if you enroll in a debt consolidation program, but if you make on-time payments, your score can quickly improve. Any process of eliminating debt will improve your credit score.
Opening More Lines of Credit
This one is tricky. The initial act of applying and opening a new line of credit (like a credit card) can actually drop your score since it requires lenders to run a credit check. However, over time it will raise your credit limit which will allow your score to rise.
For example, let’s say you have a credit card with a monthly limit of $5,000, and you spend about $3,000 monthly on it. You’re spending a whopping 60% of your available credit. If you continually utilize that much of your spending limit, your credit score will drop. Now say you open a second card, this one has a limit of $10,000, and you only spend around $1,000 on it monthly. This is a utilization ratio of 10%. That is excellent. Pair them together (and do some quick math 4,000/15,000 = .26) and your overall ratio is 26%. The golden rule is to try to have a ratio under 30%. Lower, if you want to increase your score faster.
Will Paying my Credit Card more often raise my credit score?
Potentially. If paying off your card multiple times a month allows you to utilize less of your credit limit, then the answer is yes. When you make multiple payments in a month you’re also more likely to pay the full card off, which will help your credit score too. Using this strategy can also allow you to budget and pay for things in smaller increments as opposed to one large credit card bill at the end of each month.
How Long Does it Take to Rebuild Credit?
Credit improves over time and there is no instant fix. However you can start seeing positive effects after about 3 – 6 months. Monitoring your credit score is important so you know where you stand. You can access your credit score through your credit card company or bank. You are also entitled a free copy of your credit report every 12 months from the three nationwide credit bureaus.