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The Short Answer

7 Ways to Improve Your Credit Score

These tips can help you establish good credit or improve poor credit.

Editor's note: This article originally ran on May 30, 2018.

Simply put, having a high credit score saves you money. Consider a mortgage loan: If you have excellent credit, you may be able to secure a mortgage loan that is as much as 1.5 percentage points lower than someone with marginal credit. That could save you hundreds of dollars every month--thousands every year. 

There are five primary factors that determine your FICO score: a 35% weighting is given to payment history, 30% to the amount you owe, 15% length of history, 10% new credit, and 10% types of credit use. You can spruce up your credit score by improving on any of these factors. Here are some ideas.

Tip #1: Fix Errors
Start by making sure there isn't any incorrect information on your credit report. Most errors, such as duplicated information, incorrect addresses, or credit limit errors, don't have a significant impact. 

But some can be bigger deals. Here's a scary statistic: One in four consumers have at least one potentially material error on one or more of their three credit reports, according to a study by the Federal Trade Commission. 

Experts say you should check your credit report once per year. There are many websites that offer free credit reports, but www.annualcreditreport.com is the website the FTC recommends.

Start by checking the public records section of your credit report. If a lien or bankruptcy that isn't yours shows up on your credit report, it's probably having a severe impact on your credit score and you should go to the public agency to get it corrected as soon as possible.

If you find a less significant error, such as a mistake in the identifying information or credit accounts data, you can dispute the information with the credit reporting agency. Here's how that works:

  • Submit a written statement (100 words or less). You can use this sample letter from the Federal Trade Commission to get an idea of how to format your statement and what information to include.
  • The credit agency has 30 days to investigate the matter and respond to you. When the investigation is complete, the credit reporting company will give you the results in writing and a free copy of your report if the dispute results in a change. 
  • If the credit reporting company decides not to change the information in your report after your appeal, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the credit reporting company to provide your statement to anyone who received a copy of your report in the recent past. (The credit reporting agency will likely charge you to do this.)
  • The credit agencies also have online tools you can use to dispute incorrect information: EquifaxTransunion, Experian.

Tip #2: Always Pay on Time 
This is pretty obvious, right? It bears repeating. The biggest factor affecting your credit score is your payment history. If you've had late payments in the past, they will affect your credit score less over time if you establish a history of dependable on-time payment. Stay on top of due dates by signing up for automatic bill pay if your credit card company has that option, or set a reminder for yourself a few days before your payment is due.

Tip #3: Don't Borrow Too Much
The next biggest factor affecting your credit score is the amount you owe. Your credit utilization score is calculated by dividing the total amount of money you owe by your total credit limit. (For instance, if you owe $3,000 and your credit limit is $10,000, you have a 30% credit utilization.) Any percentage below 30% is considered good in terms of your credit score.

Tip #4: All Things Equal, Keep Longstanding Accounts Open
Another contributing element is the length of your credit history. Let’s say you decide you have too many credit cards and want to close one. You are deciding between one you’ve had since 2004 and one that you opened in 2016. All things equal, it’s better for your credit score to keep the card with the longer history of on-time payment open. Of course, though, this shouldn't be the only factor driving your decision--if the older card has a higher interest rate or annual fee, it could make better sense to close it.

Tip #5: Understand the Effect of 'Soft' and 'Hard' Inquiries
Soft inquiries have no effect on your credit score. When you check your own credit score, or when an employer or landlord is conducting a background check, this is considered a "soft inquiry."

Credit card preapproval offers are also soft inquiries. (Tip: If you really would love to stop receiving those, consumers nationwide can now freeze and unfreeze their credit free of charge; this was part of the Dodd-Frank repeal bill signed into law on May 24.)

Tip #6: Have a Mix of Credit Types 
A borrower with a long history of responsibly managing a mix of credit types—such as a mortgage, a credit card, and an auto loan, will likely have a higher credit score than someone with just one type, all else equal. 

Tip #7: Seek Out Smart Ways to Establish and Improve Credit
If you're just starting out or you've had some credit missteps in the past, the options below could help you build good credit (provided you pay on time, every time). 

A secured credit card. A "secured" credit card is backed by a secured payment that's used as collateral on the loan. Unlike a debit card, a secured credit card can help you establish and build credit. Make sure you understand the fees and conditions when applying for secured credit cards. (Online resources like Nerdwallet.com can help.)

Get credit for paying rent on time and in full. As Experian explains in this post, if you currently rent or are considering renting, ask your property management company if it reports rental payment data to credit ratings agencies. If you rent from an individual landlord or property management company that does not report data, you might be able to sign up with an online rent payment service that works with credit ratings agencies.

An auto loan. Auto loans can be easier for subprime lenders to get than other types of loans. There are a few reasons for this: Data reveals that many people who default on other types of loans still tend to make their car payments in order to retain use of their automobile. Also, auto loans generally require a downpayment and are considered "secured" because the car itself is collateral. The auto credit score used by auto lenders is different than the regular credit score, although it is also calculated by FICO. Many auto lenders base their lending decision on your auto credit score, which is calculated primarily on your previous auto loan history and not your overall credit.