How to Improve Your Credit Score - 8 Tips

It's better to pay off your credit card than to keep a balance because paying the card off will save you money on interest. Credit card companies charge interest when you don't pay your bill in full every month, but you'll enjoy a grace period with no interest if you always pay your full statement balance by the due date.

Some people think you need to carry a balance in order to see positive information on your credit report, but that's simply not true. You don't even need to use your credit card to build credit. Simply keeping an account open and in good standing is enough to help your credit.

Here's why it's better to pay off your card than to carry a balance:

• If you pay your bill in full each month, you won't be charged any interest on most credit cards, thanks to a grace period. But you'll lose the grace period if you don't pay in full one month, and you'll have to pay your entire balance for two consecutive billing cycles to get it back.
• You don't need to carry a balance for a credit card to help your credit score. What matters most for credit building is meeting due dates and keeping credit utilization low.
• Paying your bills on time doesn't require you to pay your balance in full each month. You just have to make the minimum payment listed on your statement. But if you take on too much debt, you may find it hard to make your monthly payments.
• Carrying a balance makes it harder to keep your credit utilization low, since your everyday spending will be added on top of the amount you're carrying from month to month. It's best to use less than 30% of the credit made available to you.

So, to recap, it's better to pay off your credit card than to carry a balance because it builds your credit history just as well without subjecting you to interest charges. Just remember, not carrying a balance does not mean you have to stop using your credit card. There is a middle ground. A balance will be listed on your credit card statement whenever you make purchases, but if you pay that amount by the due date, you won't really be carrying a balance.

Using your card regularly actually helps because having a credit utilization ratio between 1% and 10% is slightly better for your credit score than 0%. But credit utilization is based on your statement balance, and your monthly statement comes before the due date. So you can still pay your bill in full every month while doing right by your credit score.

Why 0% APR credit cards are an exception

During the 0% APR introductory period, your balance – whether from a purchase or balance transfer – won't accrue interest as long as you pay the minimum amount required by the due date each month. So, keeping a balance is expected, but you do have to make monthly payments along the way. And if you don't pay in full by the end of the 0% period, interest will come into play.

That said, if you've got some credit card debt you'd like to get rid of, a 0% balance transfer credit card could help you save a lot of time and money. And if you're trying to improve your credit, WalletHub's free daily credit scores and credit analysis can get you on track.

The best credit card for increasing your credit score is the Capital One Quicksilver Secured Cash Rewards Credit Card. It has a $0 annual fee, offers 1.5 - 5% cash back on purchases, is available to people with bad credit, and reports monthly to the three major credit bureaus. Monthly credit reporting will help build your credit score if you use the account responsibly.

Some of the Best Credit Cards for Increasing Your Credit Score

You can read more about how to increase your credit score on WalletHub. You can also join WalletHub for free to check your credit score and get personalized tips on how to improve.

Good credit is important because it demonstrates you've managed debt well in the past. Many lenders, creditors and other businesses, like utility companies or internet providers, use credit to forecast your future behavior, and you are considered trustworthy if you have good credit. So, when you apply for credit, loans, goods, services, an apartment or even employment, you are more likely to be successful and receive the most advantageous terms.

For your convenience, we've compiled a list of the top ways good credit can impact you and your finances below.

Reasons Why Good Credit Is Important

Lower borrowing costs – It will cost you less to borrow money when you have good credit. Your interest rates for various kinds of debt obligations, like mortgages, auto loans and credit cards, will be lower than what consumers with poor credit pay, which can save you thousands of dollars over the long term.  

Access to valuable credit card perks – Credit cards for people with good credit are a lot more rewarding than credit cards for applicants with lower scores. Between rewards on purchases, initial bonuses and 0% introductory APR promotions, you could save hundreds of dollars per year.

Reduces the cost of goods and services – Service providers, like insurance, utility and cell phone companies, will charge you less when you have good credit – compared to bad credit, for example. Your insurance premiums will be lower, and you will either have a very low deposit or not have to pay one at all for other services.

Makes it easier to find a place to live – Landlords, like lenders or creditors, review your credit history to determine if you will handle your future payments responsibly. With good credit, landlords are less likely to require you to pay large deposits and upfront fees or to add a cosigner.

Helps you land a job – Some employers check prospective employees' credit history to determine if they are in financial duress. Bad credit could indicate an employee may commit fraud or theft, while good credit can indicate a higher level of responsibility. This is particularly important if the position involves handling money or sensitive customer data.

You can check your credit report and credit score as well as sign up for credit monitoring for free here at WalletHub.

To fix your credit fast, you need to dispute credit report errors and add a lot of positive information to your credit report to offset existing negative entries like late payments. Examples of positive information include reduced credit utilization and on-time payments.

You can also use WalletHub's free credit score simulator to see what impact different actions will have on your credit and how long each might take.

How To Fix Your Credit Fast

1. Dispute credit report errors: If any personal or account information is inaccurate on your credit report, you can dispute it with each of the three major credit bureaus. Correcting negative information will raise your credit score.
2. Pay down debt: Having less debt will increase your credit score. Lowering your debt load also improves your finances overall. This allows you to always pay your bills on time and build an emergency fund to ensure your credit remains intact.                                         
3. Lower your credit utilization: Credit utilization reflects how much of your credit limit you are currently using. By paying down your credit card balances, you can reach the ideal credit utilization ratio, 1-10%. Note, anything under 30% is still considered good. These thresholds are for each individual line of credit and for your overall utilization, which includes all your revolving accounts.
4. Add rent or utility payments to your credit report: Rent and utility payments are not automatically reported to the credit bureaus, but you can use a third party service to have them added. The record of on-time payments will improve your credit.
5. Pay off accounts in collections: Paying off accounts in collections can improve your credit, depending on the scoring model. Newer credit scoring models like VantageScore 3.0 ignore collection accounts with a $0 balance. As a result, paying collections accounts may boost your score. However, scores generated by older models are not impacted by paid collections.
6. Request higher credit card limits: Requesting a higher credit limit can lower your credit utilization and improve your credit score, as long as you don't also increase your spending. However, credit inquiries to raise your card limit temporarily lower your score by a small amount, usually 10 points or less, so the benefit might not be as fast as you'd like.
7. Use a secured credit card: Secured cards are available to consumers with bad or limited credit. They require a security deposit, which means they are less risky for lenders and also give applicants high approval odds. Maintaining a secured credit card account that's in good standing will add positive information to your credit report each month and thus help improve your credit score.
8. Diversify your credit mix: Credit cards and lines of credit are considered revolving accounts, while mortgages and auto loans are examples of installment accounts. Having a mix of account types improves your credit.
9. Keep your accounts in good standing: Payment history is the most significant factor affecting your credit. Paying your bills on time each month will raise your score.

Yes, paying down your credit card balance can improve your credit score by lowering your credit utilization and total debt as well as by adding positive information to your credit history with on-time payments. Paying down your card balances also reduces your interest costs, which can save you thousands of dollars.

You can see how paying down your credit card debt is likely to affect your credit score using WalletHub's free credit score simulator.

Just note that lowering your credit card balance today might not lead to credit score improvement tomorrow. The balance listed on your monthly statement when your credit card company reports to the major credit bureaus is what really matters, so credit score improvement could take weeks at a minimum. You also need to continue paying your bills on time so only positive information gets added to your credit report.

Why Paying Down Credit Card Balances Helps Improve Credit Scores

Low Utilization Improves Your Credit Score

Your credit utilization measures how much of your credit limit you're using, as of your monthly statement date. If your credit utilization ratio surpasses 30%, your credit score could fall. Ideally, you should lower your utilization to the optimal ratio, 1-10%.

Reducing Your Balances Helps Your Credit

Lowering your total debt can improve your credit score by making you seem like less of a risk to lenders. Your credit score factors in the number of accounts you carry a balance on and how much you owe on credit cards and installment loans. Lower is better for each of these data points.

Positive Payment History is Crucial to Good Credit

Payment history is the most important factor affecting your credit score. Late payments, defaults, and collections can have a negative impact on credit scores and remain on credit reports for years. A strong payment history, on the other hand, demonstrates financial responsibility and can lead to a higher credit score.

Credit Card Debt Can Be Expensive

New credit card interest charges accumulate daily, and minimum payments typically only cover 1% to 3 % of your outstanding balance, including interest and applicable fees. So, if you only make the minimum payments, your balances can remain high, which may prevent your credit score from increasing.   

Finally, it's important to note that closing a credit card account after paying down the balance can negatively impact your credit mix, causing a decrease in your credit score. Having a mix of credit types, such as credit cards and installment loans, can indicate to lenders you're able to borrow responsibly. So even if you pay down the balance, you should ideally keep your credit card accounts open.

If you're interested in tracking your credit score's progress as you pay down your debt, you can get daily credit score updates and personalized credit-improvement tips for free here at WalletHub.

You can pass a rental credit check by providing proof of a strong credit history and income. This may include on-time payments listed on your credit report and verifiable income documented via your most recent paystubs and bank statements.

If your credit is poor, a landlord may ask you to strengthen your application by paying a larger deposit, adding a co-signer, or providing references.

Tips for How to Pass a Rental Credit Check

• Check your credit report for errors and dispute any with the credit bureaus.
• Verify your income with paystubs, bank statements or an employment letter.
• Show payment history for previous rentals, utility bills, and other services.
• Secure a recommendation from a previous landlord.
• Find a co-signer or a roommate.
• Pay a larger deposit.
• Search for a rental that doesn't require a credit check.

You can check your credit score for free and also access personalized tips for improving it here at WalletHub.

Quick is a relative word in credit repairing, and if you have big negative marks, including foreclosures, short sales, bankruptcies, tax liens, charge-offs, and judgments, it will take up to 7 years to erase them off your report.

However, here are a couple of things you can do:

1. Pay small pending balances: If you have multiple cards, start with a couple having low balances, ranging in $50 to $200. Clearing these small balances will indicate to the credit agencies that you're trying to pay the debt.

2. Ask for credit limit increase: Try to choose an old card, one with a good payment history. Increasing your credit limit is likely to lower your debt utilization, and net you some credit points.

3. Use traditional 30% usage formula: It is best if you stop maxing out your card, and I understand that it could be difficult, so start bringing your credit usage down gradually until you reach 30% utilization.

4. Use credit card for Netflix or similar utility services and repay it full: If you don't have an excellent bill payment history, start using your card for small charge-offs like Netflix service and pay it off in full.

These simple acts will indicate good credit behavior and will go far in repairing your credit. Prior to using any of these tips, get your credit report from all the three bureaus and look for errors.

Correcting credit errors can boost your credit score quickly, at least 60 days.

It usually takes up to 30 days for your credit to improve after paying off a credit card. The exact timing depends on when your billing cycle ends and when the credit card issuer reports the payment to the major credit bureaus. Lenders typically report once a month. Paying off a credit card does not always lead to credit score improvement, though.

You can use WalletHub's free credit score simulator to find out how paying off your credit card will impact your score specifically. You can also receive daily credit score updates for free at WalletHub.

Credit Report Updates and Your Credit Score  

While your credit report will likely update within 30 days, your credit score may not. Your credit score is calculated based on the contents of your credit report, but not every new piece of information on your credit report actually changes your score.

If you already have good to excellent credit, for example, paying off your credit card will help you maintain your current score but is unlikely to increase it significantly. In other cases, the credit-scoring models may need to confirm that a lowered credit card balance is really a sign of newfound financial stability and not just a one-time thing.

Impact of Closing Cards After Paying Them Off

Your credit score may decline if you close your account after paying off your credit card. Closing your account will likely increase your overall credit utilization and may effectively reduce the length of your credit history, both of which are bad for your credit score. Even if you have a $0 balance, it's ideal to keep your accounts open, especially if there's no annual fee.

You can check your credit report and your credit score as well as get personalized credit-improvement tips for free here at WalletHub.

The best cheap credit repair option is to fix your credit yourself, with the help of a free service such as WalletHub. The cost of using a credit repair company can be considerable, ranging from hundreds to thousands of dollars, and such a company can only take the same steps you can.

How To Fix Your Credit Yourself

• Review your credit report regularly: By reviewing your credit report, you can assess the damage and make a plan to rebuild. You can check your credit report for free here at WalletHub.
• Dispute errors on your credit report: If inaccurate information adversely impacted your credit, you can file a dispute with the three major credit bureaus to have it removed. The bureaus typically respond to claims within 30 to 45 days.
• Catch up on past-due bills: The longer late payments linger, the more they impact your credit. Because payment history is the most significant factor affecting your credit, keeping all of your accounts in good standing is imperative.
• Build an emergency fund: Budgeting and building an emergency fund can help you avoid missed or late payments. The additional savings will also prevent you from overspending and borrowing unnecessarily. Strengthening your finances will ultimately help your credit.
• Apply for and use a secured credit card responsibly: Secured credit cards require a deposit and therefore have high approval odds. Using a secured card responsibly will add positive information to your credit reports, offsetting past mistakes. Secured cards don't appear any differently than unsecured cards on credit reports.  
• Keep credit utilization low: Ideally, your credit utilization ratio should be between 1-10%. If your utilization surpasses 30%, your credit score will likely fall.

You can get help mending your credit from free services such as WalletHub, which provides personalized credit-improvement tips, along with 24/7 credit monitoring and daily updates to your credit score and report. In other words, you can get a free roadmap to credit repair as well as the means to track your progress.

There are also non-profit options available, and many paid services offer free consultations.

Notable Credit Repair Services

• National Foundation for Credit Counseling
• Financial Counseling Association of America
• CreditRepair.com
• LexingtonLaw.com
• The Credit People
• Ovation Credit Services
• Credit Saint