Maybe you want to buy a car — or even a new house — in 2021. To get the best deal on financing, you need to have a good credit score.
A credit score is a three-digit number calculated based on your credit report — or your track record of paying back loan obligations. The higher your score means you’re a lower risk of defaulting on that loan. The most common credit scores — FICO and VantageScore — use a 300-850 range.
Lenders use your credit score to help determine if you qualify for a loan and what interest rate you’ll pay on that loan. Higher credit scores get lower interest rates, meaning it’s cheaper to borrow if your risk is low.
Generally, there are no quick fixes for a low credit score — so beware of anyone promising one! Instead, a slow-and-steady strategy will lift up your score or help you build up one if you don’t have one already. Here are six ways to do that.
Fix any errors
Pull your credit report at all three credit reporting bureaus: Experian, Equifax, and TransUnion. You’re entitled to a free one from each bureau once every 12 months. You can get yours at annualcreditreport.com or by calling 1-877-322-8228.
Once you have the three reports in hand, look over each carefully for any mistakes, specifically ones that don’t report the correct loan amount, outstanding balance, or timely payments, or those accounts that don’t belong to you (this can be a sign of identity theft, too!).
If you find errors, you can dispute them directly with the credit bureau. (Here’s where to go at Experian, Equifax, and TransUnion to start that process.) This may require you to submit documentation to support your case. You may also need to speak with the lender of the account to get the error corrected.
How much the error’s removal will help your credit score depends on the mistake itself. For example, getting rid of a delinquent account that’s not yours could boost your score significantly.
Pay on time, all the time
The biggest factor contributing to your credit score is your payment history, which accounts for 35% of your total FICO credit score. That means consistent, on-time payments are key to a good credit score.
Make it easy on yourself and set up automatic payments. If you can’t, set monthly calendar alerts telling you it’s time to pay your bills. Even if you can only pay the minimum on a credit card rather than the entire balance — which is the ideal goal — just showing that you’re making the payment on time every month indicates you’re a responsible borrower and will help improve your credit score.
Don’t use too much credit
The second-most important factor in your credit score is amounts owed. The tricky part is understanding your utilization rate, or the percentage of the available credit that you use. Here’s how you figure that out.
Say you have a credit card with a $1,000 credit limit. If your balance on that card is $500, then you’re using half of the available credit. That means your utilization rate is 50%.
A good starting point is to lower the utilization rate to 30% on each credit card and cumulatively across all of your credit cards. Of course, lower is even better. Those with the highest credit scores kept their utilization rate at 4%, according to one FICO study.
So, imagine this scenario:
Card 1: $500 balance on $1,000 credit limit
Card 2: $150 balance on $500 credit limit
Card 3: $1,000 on $5,000 credit limit
The utilization rates are 50% for Card 1, 30% for Card 2, and 20% for Card 3. Across the three cards, the utilization rate is roughly 25% (total balances divided by total credit limits).
To improve your credit score efficiently, start paying down the balance on Card 1, which has the highest utilization rate, then Card 2, and last, Card 3. Doing that will also lower your overall utilization rate, another boost for your credit score.
Avoid new, unnecessary credit
Maybe you’ve been eyeing that new credit card with the splashy sign-on bonus. Or maybe the at-the-register discount on that store credit card seems too good to pass up. Tread with caution when opening new accounts.
If you open too many new accounts in too short of time, your credit score will take a hit. That behavior indicates a greater lending risk. Instead, be judicious when signing up for new credit.
It’s okay to get a new store credit card if you frequent the establishment. But don’t be pulled in by one-time discounts or bonuses for a card that will gather dust in a drawer soon after.
Add rent to your credit report
If you’re a responsible tenant, that could help your credit score. All three major credit bureaus will include rent payment information on your credit report if it’s available, while newer versions of the FICO credit score along with VantageScore will use that rental payment when calculating your score.
The crux is getting the rental payment on your credit report in the first place, which requires some legwork on your end and potentially an upfront payment. Find out if your landlord has opted in to one of these rent reporting services: ClearNow, PaymentReport, or PayYourRent.
If not, here are services you can set up yourself, although you may need your landlord to confirm your rent payments.
CreditMyRent: This service charges $6.95 a month to report to TransUnion. There’s also a one-time initiation fee between $25 and $145, depending on what service tier you select.
Esusu Rent: For a $50 annual fee, this mobile app service reports your rent payments to the three major credit bureaus.
LevelCredit: The service charges $6.95 a month to report rent and utility payments to Equifax and TransUnion.
Rent Reporters: After a one-time enrollment fee of $94.95, you must pay $9.95 a month to report your rent payments to TransUnion and Equifax.
Rental Kharma: The setup fee is $50, which comes with six months of past history, while the service charges $8.95 per month to report to TransUnion.
Rock the Score: After a one-time enrollment fee of $25, you must pay $8.95 per month to report to TransUnion and, potentially, Equifax if your landlord is a property manager. You can also pay $99 to report up to two years of rental history.
Add other accounts to your Experian credit report
You just need to provide information on the bank account or credit card you use to pay those bills. The data remains private. You also can choose which bill history you want to add to your Experian credit report. The tool will only use the payment histories that will improve your credit. You can also remove the accounts from your credit report at any time.
The only limitation is that the information is not added to your Equifax or TransUnion credit reports. So, only credit scores based on your Experian credit report will see a boost.
Read more information and tips in our Credit Cards section