Earn A Higher Credit Score in 8 Steps

There are a lot of reasons why you might be interested in improving your credit score. If you’re preparing to buy a home, a higher credit score can improve your chances of getting a lower interest rate on a mortgage. On a mission to enter the housing market, yet recovering from a difficult financial time? It’s even more imperative to fix bad credit and boost your credit score before applying for home financing.

Improving your credit score takes time. Credit scores are based on your extended credit history, so it’s important to take steps as soon as you can to adopt healthy credit habits. Do this, and you may begin to start seeing changes to your score in as little as a few months.

Keep in mind that even if you have low credit, there are still options for buying a home. Pre-qualify for a loan to get connected with a lender. Be upfront with your lender about your credit score challenges to work together on a financing solution.

The following is designed to help you improve your existing credit profile to improve your score over time. If you’re just getting started on your credit journey, check out these helpful tips to start building credit.

What is a credit score?

A credit score predicts your likelihood to repay a debt, based on how successfully you’ve repaid debt in the past. There are three main credit bureaus that collect information about your credit history and inform your overall credit score: Equifax, Experian and TransUnion.

There are two different credit scoring models that can be used: a FICO score and a Vantage score.

What’s the difference between a FICO score and a Vantage score?

Your Vantage score is the score you’re likely familiar with; it’s commonly reflected on credit monitoring sites or apps. But a FICO score calculates your credit using an industry-specific scoring model. FICO is traditionally used by mortgage lenders to measure your risk as a borrower. FICO scores require at least six months of credit history to calculate, whereas Vantage begins calculating a score with just one month of credit history.

In the past, Vantage and FICO scores had different numerical ranges, resulting in greater differences between resulting scores. Today, they both use a range of 300 to 850, but they weigh various credit scoring factors a bit differently.

If you're working to improve your credit score to buy a house, you’ll want to pay attention to both scoring models. The Vantage score is more accessible for you to monitor as your baseline score, and when you pre-qualify for a mortgage, your lender will surface your FICO score. The FICO score is the data your lender will rely on to determine your loan eligibility.

What affects your credit score?

Your FICO credit score is affected by a combination of factors, including:

Payment history: 35% of your score is determined by how regularly you pay debt on time. This can include everything from paying credit card bills on time, to making your car payment or even paying your cell phone bill.

Credit usage: 30% of your score is based on how much of your available credit you’re using. Having a high percentage of available credit shows that you’re a responsible borrower who doesn’t max out credit cards.

Length of credit history: 15% of your score is calculated based on how long you’ve had an established credit profile — the longer, the better.

Credit mix: 10% of your score takes into consideration the various types of accounts you have. Ideally, you’ll want a combination of installment loans (like a car loan or student loan) and revolving loans (like a credit card).

Recent activity: 10% of your score is impacted by how recently you’ve opened new lines of credit. That’s why if you’re in the process of applying for a mortgage, you shouldn’t take out new credit cards or loans.

What is considered good credit?

FICO credit scores can range from 300-850. According to Experian, most consumers have credit scores that fall between 600 and 750. Good credit is considered anything 670 or above:

Why does credit score matter?

A healthy credit score not only helps you qualify for a loan, but it helps you secure a better interest rate, which can save you hundreds or thousands of dollars over the life of your loan.

What does credit score impact?

Your credit score impacts your interest rate — the percentage you pay to borrow money on a wide variety of financial products, including home loans, auto loans, credit lines and credit cards. It doesn’t affect any fees or other charges associated with taking out a loan, like home inspections or closing costs.

Your credit score can also impact your qualification for things like rental applications and insurance for your home.

How long does it take for a credit score to go up?

The length of time it takes to raise your credit score depends on your starting score and the reasons your credit score is less than ideal. Lenders report to the credit bureaus every 30-45 days, at which point you may see fluctuations in your score if you begin making improvements.

For example, in a couple of months you can see increases to your score by making timely payments, paying down outstanding balances and disputing errors in your credit report. Larger, more significant score increases — such as moving from “fair” to “good” can take up to a year, assuming you don’t add any new debt or make any late payments.

However, the effects from inconsistent payment history can take longer to correct. This is for two reasons: it’s highly impactful to your score (worth 35%) and it continues to factor into your score for years. Harmful factors such as late payments and accounts that get sent to collections stay on your credit score for seven years. Bankruptcies stay on your credit score for seven to 10 years.

But don’t get discouraged — No matter what your credit score is now, there are ample ways to make meaningful improvements and even a bump of a few points can make a difference in your interest rate.

How to increase your credit score quickly

If you’re looking for ways to build credit fast, here are a few steps you can take.

Look for errors: It’s not uncommon to find mistakes on your credit report with one or more credit bureaus. If you find an error, dispute it with the bureau(s) directly and follow the required steps to get it resolved. You can also hire a credit repair service to act on your behalf.

Increase your credit limit: Reach out to your existing credit card companies and ask if they’ll increase your credit limit — just be sure to confirm that your credit won’t take a hit by asking for an increase. With a higher credit limit, you’ll effectively lower your credit usage percentage.

Ask a friend or family member to add you as an authorized user: If part of the reason you’re not capturing a “very good” or “exceptional” score is due to a lack of credit history, becoming an authorized user on a long-standing credit account can be highly impactful. Again, ensure the lender won’t run a hard inquiry on your credit before adding your name.

Avoid making large purchases or opening new accounts: Avoid anything that will increase risk, such as opening new credit accounts or buying big-ticket items on a credit card.

Pay down credit card balances: Pay off as much revolving debt as you can. Paying off a credit card in full can give your credit score a quick boost.

How to improve your credit score over time

Improving your credit score is an ongoing process. Here are eight important things you can do to monitor and increase your credit score over the long term.

Step 1: Monitor your credit score

Once a year, you can get free credit reports from Equifax, Experian and TransUnion via AnnualCreditReport.com. Read through them line by line and check for errors like late payments or penalties. It’s also helpful to compare across the three reports and make sure they all have the same information.

You can also sign up for credit monitoring with your bank or a selection of popular apps — some are even free. These types of monitoring don’t affect your credit and will notify you about progress, alerts or potential fraud.

Step 2: Dispute and resolve errors

Whenever you find an error, contact the credit bureaus in order to dispute and resolve them. You can also hire a credit repair service to act on your behalf. Exactly how you dispute something on your credit report depends on which credit bureau you’re contacting. Generally, you can file a dispute online or in writing, by mail. Errors to watch out for could be anything from incorrectly reported accounts to credit limit errors.

Step 3: Pay delinquencies off as soon as possible

Start by paying off any delinquent bills, even if they’re already in collections. It won’t eliminate your late payment history, but it will resolve the debt and stop you from continuing to get late payment flags. Then, pay off any large credit card balances as your budget allows. Watch this video for more debt repayment strategies.

Don’t rush to pay off installment loans, though. These monthly loans demonstrate your credit history, credit mix and consistent payments. And, don’t close accounts when they’re paid off — more on that below.

Step 4: Sign up for scheduled bill payments

Since on-time payments are responsible for up to 35% of your credit score, it’s important to never make a late payment. Take advantage of auto-pay, scheduled bill pay tools from your bank or lender and calendar reminders to ensure you always pay on time.

Step 5: Reduce your use of available credit

Since 30% of your score is calculated based on your credit utilization ratio — meaning how much of your available credit you’re using at a given time — reducing your credit card balance is an easy way to boost your score. In fact, ideally you should be paying off your balance in full every month.

Try to keep your total credit utilization ratio below 30% to avoid hurting your credit score. To improve your score, keep it under 7%. Here’s an example: If the combined credit limit of all of your credit cards is $5,000, you should have a balance of less than $1,500 at all times. To boost your score, you’ll want a balance of less than $350.

If you have multiple credit cards, as many people do, credit monitoring tools can keep track of your utilization ratio for you.

Another way to improve your ratio is by boosting your credit limit. Ask your credit card company for an increase online or by phone, but be sure your credit score won’t be affected.

Step 6: Don’t close any accounts

As you pay off debts, it’s tempting to close out unused accounts. But since your credit history is still visible in your credit report — and makes for up to 15% of your score — don’t close any accounts. Closing accounts can shorten your overall credit history (if it’s an account you’ve had for a long time) and it can increase your credit utilization ratio.

Step 7: Avoid hard credit inquiries

If you’re improving your credit in hopes of purchasing a home soon, don’t open any new credit accounts. Hard credit checks — like those that are done when you attempt to open a new credit card, line of credit or loan — can negatively affect your credit score for six to 24 months.

Soft credit pulls are less of a concern, as they don’t impact your credit score. Some examples of soft credit inquiries are when you check your own credit report, when companies send you promotional credit offers or when you sign up for credit monitoring services.

As you’re shopping for mortgages, you should also keep your credit score in mind. Don’t take too long to shop around for interest rates. Lenders must pull your credit report every time you apply for credit. If you’re searching for a lower interest rate, there is generally a grace period of 45 days before your score is affected. All credit inquiries made within the 45-day window will be treated as a single hard inquiry.

Step 8: Consider opening a single, new account

While this goes against the advice above of avoiding the hard credit inquiries that come with opening accounts, in certain circumstances it can make sense to open one new account.

For example, if you’re concerned about your credit utilization ratio and can’t get your credit limit increased on your existing cards, you could open a new account to increase your available credit. Credit utilization is responsible for 30% of your score, yet new accounts are only 10%.

It may also be advantageous to open a new credit card with an attractive balance transfer offer. That would allow you to consolidate your debt onto a single card, effectively “paying off” other cards’ balances. If the card you open has a 0% interest rate for a promotional period, it can also help you avoid interest charges while you pay off debt. Just be sure to read the fine print — balance transfers can carry fees of 3-5%.

How to buy a house with bad credit

Even if you don’t have perfect credit, homeownership may still be very much within reach. It’s important to be upfront with your lender or bank. Let them know that, while you have been taking steps to improve your credit score, it may not yet be where you want it to be.

Be sure to get pre-qualified before you shop for a home. According to a Zillow survey of successful buyers, 20% of buyers said their mortgage or financing falling through was a reason for losing at least one home during their shopping experience.

Starting these conversations early will save time, as it will point your lender in the direction of loan options that are a better fit for you, like an FHA loan that has less strict qualification requirements. For example, conventional loans may require a credit score of at least 620, but FHA loans allow scores as low as 580.