Having a good credit score can help you save a lot of money. For example, let’s say you have a credit score of 700. This is considered a “good credit score,” and you’re likely to get approved for loans and credit cards with low interest rates. According to a study by LendingTree, raising your credit score from “fair” to “very good” could save you almost $50,000 over the lifetime of the loans—this ends up being a monthly savings of over $250. Traditional institutions widely use credit scores as an easy way to assess creditworthiness.
While credit score does not provide a complete picture of your creditworthiness, it’s important to understand your score and find ways to optimize it. If you are looking for a boost, here are 8 ways to improve your credit score:
- Knowledge is power. The first step towards good credit is understanding the basics about credit reporting agencies and credit scores. Brush up on your credit score knowledge.
- Never miss a payment. For most people, the bulk of their credit score is based on their payment history, so even if you can only make a minimum payment, make sure you are always making payments on time. If you have any past-due accounts, pay off the most past-due account first, and gradually catch up on all your payments.
- Try not to use more than 30-40% of your available credit. While it’s important to regularly use your available credit, you should avoid using more than a reasonable share of it at any given moment.
- Ask for a credit increase. Locking in a credit limit increase boosts your debt-to-credit ratio without you having to pay down any outstanding debt.
- Transfer debt to a personal loan. The interest rate on a credit card is often higher than it would be on a personal loan. Consolidating high-interest debt into a single personal loan could boost your credit score and save you money.
- Don’t close accounts. This may seem counterintuitive, but canceling credit cards can have a negative impact on your debt-to-credit ratio as well as your credit history—two of the five categories used to calculate your credit score.
- Get new credit to improve your credit score. If your credit score is too low to qualify for a new credit card or loan, sign up for a secured credit card. A secured credit card is similar to a gift card: you put down a deposit that serves as your credit limit. Make sure your secured credit card reports to all of the credit bureaus to maximize its positive impact on your score.
- Set up automatic payments. We’re all busy people, so it’s easy to forget to make a payment. We’re big proponents of automating your finances to the extent possible so you can spend your time doing more productive activities. All you have to remember is to update your credit cards when they expire or get replaced.
Beyond your credit score
Your credit score is important, but it’s only part of the story regarding your financial health. It’s up to you to take control of your finances and work towards your financial goals. One great place to start is by paying your bills on time, resolving debt, and addressing any mistakes on your credit report.
If you need a loan, at Upstart, we understand that credit scores don’t always give a perfect picture of your creditworthiness. Our AI model looks at non-traditional variables, like your employment and education¹, when it comes to personal loans, debt consolidation loans, and more.
¹ Neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan.