7 Steps to Improve Your Credit Score and Boost Your Financial Health

Are you feeling the weight of a low credit score holding you back from your financial goals?

You’re not alone. While the average credit score in the U.S. is 714, many individuals struggle with scores below 580. This can make it difficult to secure loans, rent apartments, or purchase homes. However, raising your credit score is doable with constant effort and the appropriate tactics. Here are seven steps to start improving your credit score today.

  1. Check Your Credit Score and Credit Report

The first step in increasing your credit score is to understand where you now stand. Your credit report offers a complete history of your credit usage over the last decade. Each of the three main credit bureaus—Equifax, Experian, and TransUnion—maintains a credit report for you. It’s crucial to check all three, as not all creditors report to every bureau. You can access your credit reports for free at least once every 12 months through [AnnualCreditReport.com](https://www.annualcreditreport.com).

Next, check your credit score. Your credit report is used by credit scoring companies to generate your score. Many credit card providers offer free access to your credit score. Checking your own credit score involves simply a light credit inquiry, which has no negative impact on your score. It’s a good idea to check your credit score once per month to stay informed about your financial health.

  2. Fix or Dispute Any Errors

Errors on your credit report can significantly impact your credit score. According to the Federal Trade Commission, one in four people have errors on their credit report, and 5% have errors serious enough to make loans more costly. Common errors include incorrect identity information, accounts that belong to someone else, fraudulent accounts, incorrect payment histories, and duplicate debts.

If you find mistakes on your credit report, report them to the credit bureau immediately. Disputing errors is a straightforward process and can lead to the removal of negative information that may be unfairly dragging down your score. By ensuring your credit report is accurate, you can start to see improvements in your credit score.

  3. Always Pay Your Bills on Time

Your payment history contributes nearly 35% of your credit score, making it one of the most essential variables. Paying all your bills on time can feel challenging, but setting up autopay can help ensure you never miss a payment. For bills that don’t permit autopay, such as one-off medical bills, pay them as soon as you receive them. If you’re struggling to afford your current balance or minimum monthly payment, contact the creditor to set up a payment plan.

Creating a budget can help you manage your finances and ensure you have enough funds to cover your bills. Scheduling your autopay to coincide with your payday can also help you avoid overdrawing your account.

 4. Keep Your Credit Utilization Ratio Below 30%

Your credit utilization ratio is another major aspect in your credit score. This ratio is calculated by comparing your credit card balances to your entire credit card limit. Lenders analyze this ratio to evaluate how well you manage your money. A good credit utilization ratio is less than 30% and greater than 0%.

For example, if you have two credit cards with individual limits of $2,000 each and $500 in unpaid balances on one card, your credit utilization ratio would be 12.5%. Divide the entire amount of your debt ($500) by the complete amount of your credit limit ($4,000) to arrive at this amount. Maintaining a low credit utilization ratio might raise your score and show that you are managing your credit well.

  5. Pay Down Other Debts

Paying down outstanding debts can improve your credit score by enhancing your payment history and reducing your credit utilization ratio. When planning to repay your credit card debt, consider using the debt avalanche or snowball methods. The debt avalanche method focuses on repaying your high-interest cards first, while the snowball method focuses on repaying your smallest balances first. Evaluate both methods to determine which is best for your situation.

If you plan to repay loan debt, be aware that you might see a temporary dip in your credit score. However, this is only temporary, and your score will improve over the long term as you continue to make payments and reduce your debt.

  6. Keep Old Credit Cards Open

Closing old credit card accounts can negatively influence your credit score by shortening your credit history, which makes up 15% of your score. Keeping these accounts open helps establish a long credit history, which lenders view favorably.

There are some exceptions to this rule. If your credit card charges an annual fee and you no longer use it, it might be worth closing. Additionally, if the issuer closes your card after a certain period of inactivity, it’s important to be aware of this potential impact on your credit history.

 7. Don’t Take Out Credit Unless You Need It

Each time you apply for new credit, your creditor will run a hard credit check, which can lower your score by up to five points. It will also reduce your average account age, which can decrease your score. Therefore, try to avoid applying for credit unless you really need it.

Can You Pay a Company to Fix Your Credit?

Credit repair companies often claim they can improve your credit score by removing negative information from your credit report. However, this is only a small part of fixing your credit score, and you may find it faster and more cost-effective to dispute errors yourself.

Credit repair companies can be expensive, often costing between $50 and $100 per month. Instead, consider seeking affordable assistance from a nonprofit credit counselor through the National Foundation for Credit Counseling if you need help with your credit.

 How Long Does It Take to Fix Your Credit?

Improving your credit score is a long-term process. After taking actions such as paying down your credit card balance, it can take a few weeks for creditors to report your payment information and for your score to update. Be patient and consistent with your efforts, and over time, you will see improvement.

Next Steps: Check Your Credit Score Regularly

Once you start taking steps to improve your credit, it’s crucial to keep regular tabs on your score by checking it once a month. This allows you to catch any errors and monitor how your actions are impacting your score. Regular monitoring can help you stay motivated and on track towards achieving your financial goals.

Improving your credit score takes time and dedication, but with these seven steps, you’ll be on your way to better financial health. Start today, and watch your score rise, opening doors to better loan rates, rental opportunities, and the possibility of owning your dream home.