To keep your finances in good order, it’s important to keep an eye on your credit score.
A good credit score can help you get access to better interest rates on loans, as well as find better deals on insurance and even cell phone plans.
With interest rates on the rise, it’s more important than ever to have a good credit score so you can save money.
Here are seven steps to boost your credit score before interest rates rise even further.
How to check your credit score?
Before you begin, it’s important to know exactly how your credit score works.
Credit scores are based on FICO models and are broken into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit accounts (10%), and types of credit used (10%).
If you can raise any one or two of these categories, you should be able to raise your score.
The first step is checking your credit score and knowing where you stand.
You can get a free credit report summary every year from each of three credit reporting agencies, Equifax, Experian, and TransUnion.
To get an accurate picture of your score and history, check all three reports at least once a year.
Checking them more frequently will not improve your score or provide any new information.
However, they might help you spot inaccuracies on one or more of your reports that can hurt your credit history.
1) Pay every bill on time
If you’re worried about missing payments, set up autopay with your bank.
You’ll never have to worry about forgetting a bill and having your interest rate rise as a result.
Over time, on-time payments will boost your credit score.
If you’re still not making it through every month without missing a payment or two, consider switching to an automatic budgeting app like Mint or Personal Capital.
Both services link directly to all of your accounts and let you set up automatic transfers in advance.
Just specify what should happen when you go over budget (transfer more money into savings? Send yourself an email?) and they’ll do it for you automatically.
2) Secure your social security number
If you haven’t done so already, get your social security number or other official ID and credit file with Equifax, Experian, and TransUnion.
Credit reporting agencies use these numbers as unique identifiers for your credit history or credit report.
The report will show which companies have reported information about you and whether you’ve paid those bills on time.
By knowing what shows up on your report, you can make sure it is accurate and fix any incorrect information that appears there—an important step in building a positive credit score.
3) Keep your credit utilization rate low
Credit utilization rate, or credit utilization, is one of three major factors that determine your credit score.
Put simply, it measures how much money you’re using compared with your total available credit.
Ideally, if you have a $10,000 credit limit on a card and only spend $500 at any given time, you’ll be using 5% of your available credit.
That’s great for your credit score because high levels of usage can indicate risky financial behavior.
What’s more: If you’re in debt and are charging up large balances on multiple cards month after month—don’t even think about closing them down!
4) Get rid of old debt
If you have old debt hanging around, it can cause your credit score to drop quickly.
Getting rid of that debt should be one of your top priorities.
The best way is to contact a credit counselor and work out a realistic plan for paying back what you owe.
It can be difficult and embarrassing, but working with an experienced counselor can help turn it into a more manageable situation.
5) Use multiple cards responsibly
If you’re using more than one credit card responsibly, your credit score will reflect that by getting higher.
One of your credit cards should be in a long-term account (the average length of time customers keep their cards is 3.5 years), and another should be in a short-term account (most people have no more than two active accounts at any given time).
As long as you’re paying your bills on time, your credit score will reflect that responsible use of credit.
That’s how you can get a high credit score with multiple lines of credit.
6) Avoid opening new accounts if you can’t pay them off in full every month
For starters, don’t open new credit accounts if you can’t pay them off in full every month.
That might sound basic, but nearly a quarter of Americans with credit cards carry a balance on their card each month.
You could make things worse by missing payments and hurting your credit score.
Keep it simple with only one or two credit cards if you must have them at all.
Get into a habit of paying off your balance in full each month by transferring money from your bank account.
And never use an overdraft as a way around not having enough funds for charges; interest will make it much more expensive than any overdraft fees your bank charges for carrying an unpaid balance.
7) Take advantage of score-boosting programs to improve your credit score
Credit scores are calculated using a variety of different pieces of information.
While no one factor is necessarily more important than another, there are ways you can influence your score.
One such way is by enrolling in third-party credit score-boosting programs, which can help raise your score by as much as 25 points within six months.
Here’s how it works: These companies will send a monthly payment that’s slightly higher than what you pay for your regular utility bills (think about it—you want them to have enough money on hand at all times so they don’t get behind) to each of your credit card issuers and banks, who then report that information to credit bureaus.
Monitor your credit score
A credit score is a number between 300 and 850 that reflects your credit history, including how you’ve managed your loans.
Every time you take out a loan or use a credit card, information about your account is sent to one of three major credit bureaus: Experian, TransUnion, and Equifax.
Once all that data has been collected and verified by these agencies, it’s crunched into a single number using FICO scoring models.
For that single number to reflect your true creditworthiness, each lender needs to report its decision on whether or not you paid on time—so if only one of them does so, your score may be low.
There’s more than one credit score, and you must keep an eye on all of them.
You want to make sure your score is calculated correctly, says Anthony Sprauve, a spokesperson for FICO.
Checking your credit report often—every four months or so—will allow you to identify any errors or discrepancies in your records.
And it will help you determine if someone has been using your information fraudulently.
