This post is part four in the “What’s my credit score?” blog series.
- Part 1: What's the difference between a credit score and credit report?
- Part 2: Why it's critical to know your credit score
- Part 3: Here’s how you can get your free credit score in one minute
- Part 4: Five easy ways to help raise your credit score
In part two of our “What’s my credit score?” blog series we explained the concept of a credit score – the number that credit-reporting agencies assign to you after an in-depth historical analysis of your credit history. Your credit score tells potential new lenders and other creditors what kind of a risk you are and how likely you are to pay off your debt in a timely manner.
Credit scores are important because they’re often a major factor in determining whether a creditor will decide to give you a loan or new credit card. Not only that, but the better your score, the more likely you’ll improve the financial terms of the credit agreement. People with higher credit scores are often offered lower interest rates, which cuts your cost of accessing new credit (e.g. the interest rate you pay). In addition, some insurance companies will charge customers with higher credit scores lower premiums.
What’s a good credit score? If we’re talking about the most common credit scoring standard - FICO – in which scores generally range from 300 to 850 (the higher, the better), then anything over 720 is typically considered “excellent,” while anything over 690-720 is considered “good.” If you have little to no credit history, you can expect to have a lower score.
Do you know your credit score?
You can find out your credit score by signing up for MoneyLion’s free credit monitoring service, which lets you quickly learn your credit score from our partner TransUnion in less than a minute.
Also key to note: your credit score isn’t set for life, and there are several simple things you can do to boost your score and make your credit profile more attractive to lenders.
Here are five of the easiest ways to raise your credit score
- Pay your bills on time. Thirty-five percent of your FICO score is determined by your payment history, i.e., whether you’ve paid your bills in full and on time, had any accounts referred to collections, or whether you’ve declared bankruptcy. That means even just paying the monthly minimums on credit card bills is better than falling behind. And, if any of your debts have gone to collections, those should be attacked first. Both FICO and VantageScore, a similar credit score provider, ignore collections with a zero balance.
- Keep your debt relatively low. Another major factor in determining your credit score is how close your credit debt is to maximum limits. All things being equal, it’s better to have $4,000 worth of debt and a $12,000 limit than $3,000 of debt but a limit of only $6,000. Many experts suggest keeping a revolving credit balance under 10% is a good idea. If your credit card debt is significantly above that, it might make sense to get a personal loan (such as from MoneyLion) to pay it off. Personal loan debt isn’t as score-damaging as credit card debt. Plus, a personal loan will likely have a lower interest rate than most credit cards.
- Age your credit. Old credit is generally better than new credit, because past accounts that have remained in good standing suggest that you can make longer-term debt payments over time. That’s why it’s difficult for people with little or no credit to have a high score (although timely payments and low balances can offset that problem). Opening more credit accounts is OK, you just may want to avoid opening too many at once so the average age of your credit accounts doesn’t fall, which can lower your credit score.
- Mix it up. Variety is the spice of life, and it can also help boost your credit score. While having longer-term credit accounts can be useful, too much of a good thing can be detrimental. Having too many credit card accounts relative to your total debt, can hurt your score. Also, many scoring systems consider what types of accounts you have. Loans from finance companies, for example, may also lower your score. On the other hand, showing that you’ve successfully paid a car loan, a student loan and credit card bills shows you can handle different kinds of credit.
- Don’t be afraid of credit! It’s easy to think you’re better off with no credit, especially if you have a bad credit score or have been burned by credit in the past. But remember: “credit” and “debt” are two different things. Having the capacity to borrow or charge doesn’t require you to do so. If you’ve just completed a bankruptcy, for instance, consider opening a secured credit card, where you deposit a set amount that you can charge against. A bankruptcy will have less impact on your score as time passes, as long as you aren’t defaulting on new loans. And don’t necessarily throw away cards you don’t use that are still in good standing (and have no annual fee). Doing so can lower your debt-to-credit ratio, which can lower your score.
What other tips and suggestions do you have for raising a credit score? Share your thoughts in the comments below.