Ways to Improve Your Credit Score

You have probably heard all about the importance of having a good credit score and the many ways in which such a rating affects your overall financial situation.

Less often discussed with consumers, generally speaking, is what they can do to build up their scores to the best possible levels and keep them there. However, such a discussion is necessary because credit scores are complicated and, for too many borrowers, more than a bit mysterious.

FICO, the company that pioneered credit scoring decades ago, cautions that consumers should beware of any claims that they can fix a bad credit score or even boost a fair one quickly and easily. The fact is that even the most basic work to improve your credit will likely take you months, not days or even weeks.

These steps will help you build a stronger credit score quickly.

Digging into the details

To understand why there's no quick fix for credit, it's important to understand that your credit score is effectively a snapshot of how you have handled credit in the past. The credit monitoring bureau Experian says that how consistently you pay your bills on time makes up 35% of your score , and even a single missed payment can set you back by hundreds of points.

Next, making up 30% of your score, is how much of your credit card's limits you're using. If your "utilization rate" exceeds 30% it may adversely affect you. Suppose you owe your lender(s) $3,500 against a $10,000 limit: You are $500 over the preferred maximum and will see your score drop commensurately.

Another 15% of your score is made up of just how long you've been using your current accounts — the longer the better. This is based on an average of all the credit in your name, from your mortgage and credit cards to auto loan debt.

The last 20% of your score is divided evenly: 10% is made up of your credit mix (how many different kinds of accounts you have) and 10% for how much new credit you have (less is better).

Fixing your score

With all of the above in mind, you might be wondering how you improve your score.

Nerdwallet notes that because the biggest chunk of your score is made up of your payment history , you should just start paying your bills on time every single month. It's not always easy, but it is necessary to maintain as high a score as possible. If you have a missed payment in your recent past, it will probably take several months of diligent payments to make up for it.

After that, it's time to be more conscientious about paying down your high credit card balances over the course of a few months or more. Doing so not only helps improve your score, but also saves you money in the long run because it reduces the amount of interest your debt accrues.

Looking to get a better handle on your finances overall, and your credit score in particular? Get in touch with the local representatives at Vectra Bank. We can walk you through the options available to you and help figure out what makes the most sense.