5 ways to improve your credit score

When securing financing for a large purchase or project—such as for a house, a car or to do home improvement—it helps to have a good FICO credit score. This three-digit number, which ranges from 300–850, represents your credit risk to lenders, helping them determine if they’ll lend you credit and what interest rate they’ll offer.

A low credit score will make it more difficult to secure credit, and if approved, your interest rate may be higher, as you’re considered a riskier borrower—which results in paying far more in interest charges over the lifetime of the loan. However, the higher your credit score, the better your interest rate may be and the quicker you’ll be approved.

So, how exactly can you improve your credit score? Below, you’ll find five tips to give your score a boost.

This helps ensure you pay bills, loans and credit cards on time. Timeliness with your payment history has the largest effect on your credit score.

A good rule of thumb is to keep your credit usage at 30% or less of your overall credit limit. This credit utilization rate, or debt-to-credit ratio, is calculated by taking the amount of revolving credit you use divided by the total credit available to you. To reduce your debt-to-credit ratio, make a concerted effort to pay down your credit card debt or loans. You also could ask your creditor for a credit line increase to further lower your debt-to-credit ratio. (Just make sure you don’t start increasing your credit usage along with that increase.)

The length of your credit history matters—so, avoid closing accounts, even when balances are paid off.

Maintaining different types of credit will have a positive effect on your score (i.e., a mortgage, a car loan, student loans and credit cards). Having only one type of credit, especially if it’s just credit cards, reflects negatively on your credit score. That being said, only apply for credit that you need, and don’t apply for new credit often. This helps you maintain a healthy debt-to-credit ratio and avoid hard credit checks, which can temporarily lower your credit score.

It’s important to keep an eye out for inaccurate information on your credit report, which affects your credit score. Under federal law, you’re entitled to one free credit report annually from each of the three nationwide consumer credit reporting agencies (Equifax, Experian and TransUnion). You can access all three at AnnualCreditReport.com. When you receive your report (which is what creditors see when they pull hard inquiries), carefully review it and dispute missing, inaccurate or fraudulent information by contacting both your lender and the credit reporting agency.