March is National Credit Education Month, making it a great time to review your credit card use. Do you know your current credit score? What about the factors that can impact your credit score? If you aren’t sure, you aren’t alone.
According to a June 2023 study , more than 30 percent of Americans don’t know their credit score. From that same survey, 23 percent of participants said they don’t know what factors contribute to their credit scores, while 38 percent said they somewhat know.
Your credit ratings assist lenders in determining whether you can repay a loan based on your past financial history. Good credit can help finance a major purchase, such as a home, education, or car. You can qualify for better interest rates and terms with a higher score than with a lower score.
Understanding what factors impact your credit score both positively and negatively is crucial – as it can help you improve your credit score.
How to Improve Your Credit Score
Have little or poor credit? Don’t worry. There are plenty of small, but meaningful steps you can take to boost your credit score. Even if you have good credit, it’s never a bad idea to make sure you are doing everything possible to keep your score strong. Here are 10 tips for improving your credit score.
- Pay your bills on time. Making on-time payments, even for a short amount of time (24 months) can influence your credit score. If you miss some payments, be extra diligent to pay on time, so you can improve your score.
- Maintain low credit card balances. Even if you pay your credit card balance off on time, high amounts of outstanding debt can negatively impact your credit score.
- Check your credit report regularly. With fraud on the rise, it’s important to monitor your credit reports for any suspicious activity. If you see unfamiliar transactions, you need to contact the original creditor and credit bureaus to address inaccurate information that could impact your credit score.
- Pay down your debt. It’s that simple. Pay off your debt as soon as possible. While there are benefits to consolidating credit card debt, that doesn’t improve credit scores in the long run. Neither does spreading debt across multiple credit cards. That said…
- Credit cards can help you build credit. The best way to raise your credit score and maintain a desirable score is to pay your credit cards and any installment loans you have on time.
- Don’t open multiple accounts too quickly. Having multiple accounts means you could be taking on a lot of debt. This is risky, especially if you have little credit history. New accounts also will lower the average age of any other existing accounts you have, which can impact your credit score.
- Don’t close an account to remove it from your record. A closed account will still show up on your credit report. In fact, closing accounts can sometimes hurt your score unless you also pay down your debt at the same time.
- Set a timeframe when shopping for loans. Credit scores distinguish between a search for a single loan and a search for many new credit lines. Too many during a short amount of time can negatively impact a credit score.
- Don’t open credit card accounts you don’t need. Having too many accounts can lower your score.
- Don’t wait to get help. Contact creditors or a credit counselor if you’re having financial difficulties. The sooner you begin managing your credit better, the sooner your score will improve.
Final Thoughts
Understanding credit scores and the factors that impact them can help you maintain a favorable score. Don’t forget that you are entitled to one free credit report every year from each of the three major credit reporting bureaus (Equifax, Experian, TransUnion). These reports can help you manage your credit more effectively.
Remember, an improved credit score can help you gain favorable terms and rates, which can help unlock your spending power!