What Actually Improves Your Credit Score

The plain answer

The most reliable way to improve your credit score is to pay every credit account on time and keep credit card balances low relative to their limits. You also need time. A longer record of responsible use gives scoring models more information.

You do not need to carry a balance, pay interest, or take out a loan only to build credit. Use credit for purchases you can afford, let the account report normally, and pay the statement balance in full by the due date.

How it actually works

Your credit score is calculated from a credit report, which is a record of your credit accounts and payment activity. Several actions can affect that record:

• Pay on time: Payment history records whether you met your obligations. Automatic payments for at least the minimum can provide a backup, but you should still review each statement.
• Lower credit utilization: Credit utilization is the percentage of your revolving credit limits currently reported as balances. If you have a $1,000 limit and a $300 reported balance, your utilization on that card is 30%.
• Keep established accounts when practical: Older accounts can support the length of your credit history. Keeping a no-annual-fee account open may help if you can monitor it safely.
• Apply selectively: A credit application can create a hard inquiry, which is a lender’s review of your report. A new account can also reduce the average age of your accounts.
• Correct report errors: An account or late payment that does not belong to you can unfairly affect your score. Dispute inaccurate information with the bureau reporting it.

There is no utilization percentage that guarantees a particular score. Lower reported utilization is generally better than high utilization, but 0% on every card is not a permanent requirement. Your balance is often reported when the statement closes, not after your payment due date. If you need a lower balance to appear before an application, you can make an extra payment before the reporting date.

Negative information usually matters less as it gets older, provided you add positive history. Most late payments can remain on a report for up to seven years. Accurate negative information generally cannot be removed because you paid the debt.

What this means for you

Set up a simple system you can maintain:

1. Charge only amounts already covered by your budget.
2. Turn on account alerts and automatic minimum payments as a safeguard.
3. Pay the full statement balance by the due date whenever possible.
4. If your reported balance is high, pay part of it before the statement closes.
5. Check your credit reports regularly and dispute errors.

If you have missed a payment, bring the account current as soon as you can. Contact the issuer if you cannot pay. A hardship plan is an arrangement that may temporarily reduce payments or interest, though its terms vary by issuer.

Score changes do not always appear immediately. Creditors usually report periodically, so a paid balance may take several weeks to appear.

Common mistakes

• Carrying a balance because you believe interest improves your score.
• Focusing on a rigid utilization rule instead of avoiding debt you cannot repay.
• Opening several accounts quickly to increase your total credit limit.
• Closing your oldest account solely because you stopped using it, without reviewing its fee and effect on available credit.
• Paying a credit repair company to dispute accurate information.
• Checking only your score and never reviewing the reports used to calculate it.
• Missing a due date while trying to make an extra payment before the statement closes.

Related pages

• How Credit Scores Work
• When Should You Get a Credit Card?
• Choosing Your First Credit Card