Written by Stephanie | Last Updated February 24th, 2020Stephanie graduated in information systems with an emphasis in cyber security management. She enjoys spending her time hiking with her children and her dogs, and playing video games with her husband.
The average American's FICO score is at an all-time high of 695. Fewer people than ever (12.5 percent) are below a 550 credit score, and 19.9 percent of Americans are now over an 800 credit score. This trend from poor credit to good credit is likely due to the increased awareness of financial health best practices and more people experiencing the benefits of a higher credit score. So how can you improve your credit score? Follow these six tips and watch your credit score rise.
1. Keep your debt to credit ratio below 30 percent
Your debt to credit ratio is the relationship between the credit offered to you and the amount of debt you owe. Credit utilization accounts for 30 percent of your credit score and is the second biggest factor. Keeping your debt to credit ratio below 30 percent will help raise your credit score.
Having a difficult time paying down your credit cards? The following tips might help you pay them off sooner:
Lower your interest rates
Increase your credit limits on existing cards
Pay more than the minimum payment
Don't acquire new debt
*Note that your credit score, the age of your account, and your payment history may be the deciding factor for lowering your interest rate or increasing your credit limit.
2. Don't close old credit lines
The length of your history is 15 percent of your credit score. Keeping your oldest lines of credit open is important to keep the average length of history high.
3. Correct any errors on your report
Make sure to get your free credit report every year and check for errors. If you believe there are errors on your report, you have a couple of options. You can try to correct these errors alone, which is tedious and requires a great deal of paperwork and time, or you can use a credit repair service. You may want to research these options before making your decision. If you are ready to contact a credit repair company for a free consultation, check out this list of top credit repair companies across the nation.
4. Pay on time every time
Your payment history makes up 35 percent of your credit score and is the largest factor of your score. Your payment history is kept for seven years through the three credit bureaus. Making your payments on time is crucial to maintaining good financial health.
5. Acquire a variety of credit types
Your credit mix is 10 percent of your credit score. A good credit mix has credit lines and loans. These loans could be auto loans, mortgages, student loans, or personal loans. If you don't have high enough credit to be approved for one of these loans, a credit builder loan or a secure credit card could help you build your credit.
A credit builder loan is just what it sounds like, a loan to help build credit. These loans are typically between $200 and $1,000 and are considered easy to pay back. These loans help to build or boost your credit score by creating a mix and establishing some credit.
A secure credit card is a card that requires a cash collateral deposit that becomes the credit line for the account. For example, if you put in $300, you can charge up to $300. This is a great way for people with no or bad credit to start improving their score.
6. Avoid applying for new credit
Applying for new credit can shorten your length of history which hurts your score. Hard inquiries that come with acquiring new credit can also hurt your credit score for 24 months.