Your credit score is a large part of your financial health, yet many people don’t fully understand how to improve it effectively. This three-digit number influences your ability to secure loans, rent apartments, receive a mortgage, and more.
By implementing proven strategies and maintaining consistent financial habits, you can systematically raise your credit score. Here are some of these smart strategies you can start practicing to improve your credit score.
What Is a Credit Score?
A credit score represents your creditworthiness as a numerical value and typically ranges from 300 to 850. Credit bureaus calculate this score based on your credit history, including payment patterns, debt levels, and length of credit accounts. The most common scoring models are FICO, VantageScore, and Experian, to name a few, which lenders rely on to assess the risk of lending you money.
Your credit score falls into specific ranges that determine your creditworthiness. Scores between 300 and 579 are considered poor, while 580 to 669 represents fair credit. Good credit ranges from 670 to 739, very good credit spans 740 to 799, and excellent credit encompasses scores from 800 to 850.
Why Is a High Credit Score Important?
Lenders view high credit scores as indicators of responsible financial behavior, making them more willing to approve your applications. Additionally, landlords often check credit scores when evaluating rental applications, and some employers review credit reports during the hiring process.
Start by Reviewing Your Credit Report
Understanding your current credit standing requires obtaining copies of your credit reports from major bureaus. Federal law entitles you to one free credit report annually from each bureau. Review each report carefully to identify any errors, outdated information, or fraudulent accounts that might be dragging down your score.
Pay close attention to account balances, payment history, and personal information accuracy across all reports. Different creditors may report to different bureaus, so you may encounter discrepancies that you should address promptly. Contact the respective credit bureau and reporting business to correct any inaccurate information.
Pay Your Bills on Time
Payment history accounts for 35% of your FICO credit score, which makes it one of the most significant factors in credit score calculations. Late payments can remain on your credit report for up to seven years and significantly impact your score. Establishing a consistent pattern of on-time payments demonstrates reliability to potential lenders and gradually improves your creditworthiness.
Set up automatic payments for at least the minimum amount due on all your accounts to avoid missed payments. Consider scheduling payments a few days before the due date to account for processing delays and recording your payments on time.
Diversify Your Credit
Credit mix comprises 10% of your FICO score and refers to the variety of credit accounts in your profile. Having different types of credit accounts, such as credit cards, installment loans, and retail accounts, demonstrates your ability to manage various forms of debt responsibly. However, only pursue credit diversification when it aligns with your financial needs and goals.
Make Payments on a Loan
Installment loans, such as auto loans, mortgages, or personal loans, contribute positively to your credit mix and payment history when managed properly. These loans show lenders that you can handle fixed monthly payments over extended periods. Making consistent, on-time payments on installment loans demonstrates financial discipline and boosts your credit score over time.
Personal loans can be particularly effective for credit building because they often have lower barriers to approval than mortgages or auto loans. The key is ensuring you can comfortably afford the monthly payments before taking on any new debt obligations.
Limit New Credit Applications
Each time you apply for credit, the lender performs a hard inquiry that can temporarily lower your credit score by a few points. Multiple hard inquiries within a short period can signal financial distress to lenders and have a more substantial negative impact because they show on your report for 2 years. New credit accounts also lower your average account age, which can further reduce your score.
Space out credit applications and only apply for credit when necessary. Research pre-qualification options that use soft inquiries to gauge your approval odds without affecting your credit score.
Dispute Inaccurate Information
Credit report errors are surprisingly common and can unfairly damage your credit score. If you discover incorrect information during your credit report review, file disputes with the relevant credit bureaus immediately. The Fair Credit Reporting Act requires bureaus to investigate disputes within 30 days and remove or correct inaccurate information.
Document all correspondence with credit bureaus and maintain records of your dispute submissions. Follow up on disputes that they don’t resolve within the required timeframe and consider seeking assistance from a credit counselor.
Understand Soft Inquiries vs. Hard Inquiries
Credit inquiries occur when someone checks your credit. However, not all inquiries will affect your credit score. Soft inquiries happen during credit checks that don’t affect your score, such as when you check your own credit or when lenders preapprove you for offers.
Hard inquiries occur when lenders pull your credit report as part of a formal application for credit. These can lower your score by a few points and stay on your report for two years. As mentioned above, avoid filing several applications in a short time period so as not to lower your score.
Keep Older Credit Accounts
The age of your credit accounts contributes to about 15 percent of your FICO score. Lenders view a longer credit history as a sign of experience and stability, which can positively influence their decision to approve you for financing. They calculate your credit history based on the average age of all your accounts, so even one closed or recently opened account can affect it.
Start Boosting Your Credit Today with City Finance
Taking steps to improve your credit score requires patience and consistent effort, but the financial benefits make it worthwhile. As you’ve discovered, one effective strategy for building credit involves responsibly managing a personal loan, which adds positive payment history and improves your credit mix. City Finance offers personal loans designed to help individuals establish or rebuild their credit profiles while meeting their financial needs with installment loans in Texas.
Ready to take the next step toward better credit? Contact City Finance today to learn how a personal loan can fit into your credit improvement strategy and help you achieve your financial goals faster.
