7 ways to fix your credit score

Having a good credit score can help you save money by making it easier to get loans with lower interest rates.

When planning to make a major life purchase like a house or a new car, good credit is essential to get the best terms for a mortgage or car loan. If you’re looking to improve your credit score, there are a few simple things you can do.

What’s a good credit score?

Before taking the steps to fix your credit score, it's helpful to know what’s considered a good credit score. With VantageScore credit scores ranging from 300 to 850, a score higher than 660 is considered good while anything above 780 is excellent, according to the credit report company Experian.

1. Check your credit report & credit score

Accounts fraudulently opened in your name or the uncommon error can greatly affect your credit score, so it’s recommended you check your credit report and score at least once a year. If you’re planning on taking out a loan for a major purchase, it’s important to check your credit report more often. Reporting fraudulent activity or identity theft or correcting any errors can improve your credit score.

2. Limit your credit card usage

How much you charge to your credit card has a major impact on your credit score. Having high outstanding balances on your accounts can negatively impact your credit utilization ratio, which can hurt your credit score. This ratio is calculated by adding the outstanding balances on your credit cards, dividing it by your total credit limit, then multiplying by 100 to get your utilization as a percentage.

How to calculate your credit utilization ratio

For example, if you have 2 credit cards and each has a limit of $5,000, your total credit limit would be $10,000.

• Card 1 limit: $5,000
• Card 2 limit: $5,000
• Total limit: $10,000

Say you’ve charged $3,000 to one card and $4,000 to the other. Your total outstanding balance would be $7,000.

• Card 1 outstanding balance: $3,000
• Card 2 outstanding balance: $4,000
• Total outstanding balance: $7,000

To get your credit utilization ratio, you would divide $7,000 by $10,000 to get 0.7, or 70% credit utilization.

• $7,000/$10,000 = 0.7
• 0.7x100 = 70%

What is the best credit utilization ratio?

To improve your credit score, experts recommend a credit utilization ratio of 30% or less. Generally, the lower your credit utilization ratio is, the better. Ideally, you should work to get your ratio into single digits.

3. Pay down your account balances

In addition to limiting how much you charge to your credit cards, paying down existing balances and maintaining a low outstanding balance will also help to improve both your credit utilization ratio and credit score.

4. Don't apply for new accounts

While it may be tempting to apply for new credit cards to pay down balances on other accounts and increase your overall credit limit, doing this could hurt your credit score. Credit applications may result in a “hard pull” or hard inquiry on your credit file, which can stay on your report for 2 years. Several hard inquiries may look like you’re taking out loans or credit cards that you may have trouble paying off.

5. Don’t miss payments

Payment history is the biggest factor in determining your credit score. Typically, payments that are more than 30 days late and unpaid debts sent to collections can stay on your credit report for 7 years and be detrimental to your credit score. While this may seem like a long time, you can still improve your credit score over time by avoiding any additional late payments.

Setting up payment alerts or automatic payments for your monthly balance or minimum due can be good ways to ensure you never miss a payment. If you’re having trouble making your monthly payments, consider talking to a credit counselor.

6. Don’t close old accounts

The length of your credit history is also taken into consideration when calculating your credit score. Usually, the longer your credit accounts have been open, the more “credit-worthy” you appear, which can boost your credit score. So even if you have old credit cards you’re not using, it may be a good idea to keep the accounts open, as closing them may lower the average age of your credit history.

7. Use credit monitoring to track your progress

You can see how your credit score is progressing over time with a credit monitoring service that tracks your credit report for things like a credit card being paid off or hard inquiries on your credit file. As mentioned before, it's always a good idea to regularly check your credit report, but a credit monitoring service can immediately notify you if there are changes or suspicious activity that may affect your credit score.