It’s important to understand your credit score and learn more about how you can improve it.
Credit Scores Breakdown
| Score Range | Rating | What it Means |
|---|---|---|
| 300–579 | Poor | High-risk borrowers; difficult to get credit. |
| 580–669 | Fair | Below-average; higher interest rates on loans. |
| 670–739 | Good | Average; should qualify for most credit products. |
| 740–799 | Very Good | Low-risk borrowers; favorable loan terms and rates. |
| 800-900 | Exceptional | Extremely low risk; best rates and offers available. |
*Note that the ranges and criteria for credit scores may vary slightly depending on the specific scoring model being used, this gives a general overview based on Equifax score ranges
Steps to improve your credit scors
Improving your credit score is an important step in financial health, especially when preparing for significant investments like buying a home. Here are some effective strategies to help boost your credit score:
1. Pay Bills on Time
- Consistency is key. Payment history makes up about 35% of your credit score, so paying your bills on time (credit cards, loans, utilities, etc.) is crucial
- Set up automatic payments or reminders to avoid late payments
2. Keep Credit Card Balances Low
- Aim to keep your credit utilization (the ratio of credit used to the total credit available) below 30%. If possible, aim for under 10%
- High balances relative to your credit limits can negatively affect your score
3. Pay Down Debt
- If you carry balances on your credit cards, work on paying them off. Reducing your overall debt improves your credit utilization ratio
- You can start with either the snowball method (paying off small balances first) or the avalanche method (paying off high-interest debt first).
4. Don’t Close Old Credit Accounts
- Keep your oldest credit accounts open, as the length of your credit history (which accounts for 15% of your score) can help improve your score
Even if you’re not using them regularly, maintaining those older accounts helps increase your average account age
5. Limit New Credit Applications
- Each time you apply for credit, a hard inquiry is placed on your report, which can slightly lower your score. Only apply for credit when necessary
- If you’re shopping for a loan (like a mortgage or auto loan), multiple inquiries within a short period (usually 14–45 days) are often treated as one inquiry
6. Check Your Credit Report for Errors
- Request a free copy of your credit report from the major bureaus (Equifax and TransUnion)
- Review the report for errors such as incorrect balances, accounts you don’t recognize, or incorrectly reported late payments, and dispute any inaccuracies
7. Become an Authorized User
- Ask a family member or friend with a good credit score to add you as an authorized user on one of their credit cards. This can boost your score, especially if they have a long, positive credit history
8. Diversify Your Credit Mix
- Having a mix of credit types (such as credit cards, a mortgage, or an auto loan) can positively affect your score. However, don’t open new credit just for the sake of diversification.
9. Use Credit-Builder Loans
- Credit-builder loans are designed specifically to help people build credit. These are small loans that you repay over time, and your payment history is reported to the credit bureaus
10. Use a Secured Credit Card
- If you’re struggling to get approved for a regular credit card, a secured credit card (which requires a security deposit) can help you rebuild or establish credit. Payments and usage are reported to the credit bureaus
Improving your credit score takes time and consistency, but following these steps can lead to steady improvement over time.