7 Effective ways to build your credit score

Your credit score is a vital part of your financial health. It can influence your ability to secure loans, rent an apartment, or lock into a reasonable rate. Whether you're starting to build your credit from scratch or looking to boost your current score, we've got you covered. In this post, we'll dive into seven effective ways to improve your credit score.

7 ways to boost your credit score

1. Pay your bills on time

One area lenders are most interested in when they check your credit score is whether you have a history of making owed payments on time — including debts such as a mortgage, loans, or credit cards. The logic is that borrowers with a solid repayment history will likely continue to pay their bills on time. Alternatively, a history of missed or late payments is a big red flag to lenders. 

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Missed or late payments can stay on your credit report for up to seven years, although the effects on your credit score lessen over time. Recent late payments are weighted more heavily than older ones. 

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One of the best ways to build your credit score is to pay your bills on time. Catch up on any payments if needed, and commit to paying them on time each month. In addition, you can set up autopay and calendar reminders to ensure that you're current on all your bills.

2. Pay off debt & keep balances low

Your credit utilization ratio is a critical financial health indicator that creditors rely on to determine if they should lend you money.

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To calculate your utilization rate: sum of unpaid balances ÷ sum of credit limits = utilization ratio.

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Example: If your debt balance is $2,500 and the sum of your credit limit is $10,000, your utilization ratio would be 25%. 

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Most lenders prefer a utilization ratio of 30% or less, which tells them the borrower is not maxing out their credit resources and is a responsible credit user. One way to move the needle on your utilization rate — and build your credit score — is to pay down your balances and keep tabs on your spending. 

3. Become an authorized user

Another common way to build your credit score is to become an authorized user on someone else's credit card. As an authorized user, you'll receive a card (which you don't have to use), but the primary cardholder is still responsible for making the payments. The balance and payment history of this account will be included on your credit report — as long as the primary cardholder is using their credit responsibly, it could help boost your credit score. 

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There are drawbacks to becoming an authorized user. For example, if the account holder makes a late payment or maxes out the card, it will affect your credit score. However, if you stop being an authorized user, the account history will stop impacting your credit score.

4. Request a higher credit limit

If your account is in good standing with the credit card company, you can contact them and ask for a higher credit limit to boost your utilization rate even more. Be prepared to make your case by having your employment status, annual income, and housing payment information ready when you make the call. It's a simple way to build your credit score, and it can cover you in the future should you need to make big purchases.

5. Limit your credit applications

Limiting your asks is a straightforward, effective way to build your credit score. Applying for a credit card or a loan can trigger a “hard inquiry” credit pull. Hard credit pulls can impact your credit score for about a year and remain on your report for up to two. 

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Making multiple inquiries in a short timespan can raise red flags, so it’s recommended to space your hard inquiries out by about six months. However, there is an exception if you browse for the best mortgage, auto, or student loans and make multiple inquiries within 14-45 days. These multiple inquiries will only count as one because it’s apparent you’re rate-shopping.

6. Add utilities & rent to your credit report

You may think that making all your payments on time will help build your credit score, but that's only sometimes the case. Lenders only see the payment history that creditors report to the credit bureaus, both positive and negative.

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Many regular bills are only reported if you request they be added to your reports — such as utilities, phone, and rent. Ultimately, they often go unreported because creditors have to pay a fee to report them. To help build up your credit history, it's beneficial for these payments to be included.  

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You can request that your utility and rent payments get added to your credit report in a few ways:

• Experian Boost is a free opt-in service you can enroll in that will scan your bank account for these specific payment types. Once you verify which data you want added to your credit file, your FICO score will reflect your utility and telecom payments.  
• Rental Kharma and LevelCredit are rent-reporting services that can help you build your credit by putting your on-time rent payments on your credit report. 

7. Dispute any errors to credit bureaus

Obtaining and reviewing your credit report is one of the best ways to build your credit score. If there are errors on your credit report, under the FCRA, the credit reporting bureau and the lender or institution providing the information are responsible for correcting them.

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If you find discrepancies on your credit report, notify the credit reporting agency that provided the report — such as Equifax, Experian, or TransUnion. In writing, tell them what you think is inaccurate and provide any documentation you have to back up your claim. They must investigate the matter and share your documentation with the company that provided the information. In doing so, you can typically improve your credit score within 30 days. 

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Upon completion of the investigation, the credit reporting bureau has to provide you with a free copy of your report if the corrected errors result in a change to your credit report. 

Final thoughts

If you have a low credit score, know you can improve it. You don't necessarily have to wait for your past mistakes to age off of your credit report. Following these seven tips can begin turning your credit score around. Is looming debt one of the most significant hindrances? Consider tapping into your equity to consolidate the debt. Learn more here.