Improving Your Credit Score

Now that you know your score, you may know you need to improve it, particularly if your score rests at or below 580. Knowing your score can help you take the first step toward improving it.

Not taking steps to improve your credit score could make it harder for you to get a loan, get a credit card or even get a job in the future, so it’s in your best interest to improve your score. How do you do it? 

Monitor Your Credit Usage

How much credit are you using? In other words, let’s say you have a $10,000 credit card limit and you use $8,000 per month. Your credit utilization ratio should end up being your debt divided by your credit card limits. You want to try to maintain a utilization ratio of 30% or less. 

In this case, $8,000/$10,000 = 0.80, or 80% — a much higher credit utilization ratio than necessary. You want that to go down to 30% or less.

Too-high credit utilization ratios could put you in a situation of denied loans, high interest rates or make a larger down payment than if you had a good credit utilization ratio.

Whatever you do, avoid maxing out your cards altogether.

Make Payments on Time

Paying your bills on time and paying down balances on your credit cards can help you raise your credit score. Your credit card company will report your payment behavior to the credit bureaus every 30 days, so any payment you make every month on time will help you boost your credit score.

Get Out of Debt

Completely getting out of your revolving debt helps your credit scores increase because you bring down your credit utilization ratio. However, don’t close your credit card accounts because that could actually affect your credit. 

Know Your Scores

At this point, hopefully you understand that you need to:

  1. Check your credit score.
  2. Increase your credit score.

Bottom line: Knowing about your credit scores is definitely one of those “adulting” things and you shouldn’t stick your head in the hand when it comes to credit scores, particularly when you need to increase your credit score.

If you monitor your credit and do your due diligence to improve your credit score, you might be surprised at how fast your credit score increases.

    Disclosure

    College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the collegeboard.org. Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.