“Credit utilization is the amount of credit you use compared to how much credit is available to you,” says Todd Albery, CEO of credit monitoring site Quizzle.com.
It’s estimated that 30% of your credit score is derived from your utilization level, and consumers can reduce utilization by avoiding maxing out their credit cards and paying off or spreading out their credit card balance, he says.
Credit card utilization is a key factor in boosting your credit score, says Bruce Murphy, president of community development banking at KeyBank.
“If possible, don’t even keep balances on your cards. Rather, pay them off in full at the end of each month,” he says.
2. Pay your bills on time every month and pay down debt
“Missing a monthly payment is one of the worst things you can do to hurt your credit score,” says Albery. “Payment history — how reliably you’ve paid your bills on time in the past — makes up roughly a third of your credit score, more than any other factor.”
If you work on only one thing to improve your credit, paying your bills on time every month would be it, he says.
“Paying off installment debt can increase your score, but remember that you can decrease the score by getting a new car, increasing your balances on credit cards and not paying your creditors on time,” Murphy says.
3. Review and dispute inaccuracies on your credit report
Errors on your credit report can take a toll on your overall score, Albery says.
“When trying to raise a credit score, the first thing you want to do is review your credit report for inaccuracies,” says Murphy. “Disputing and having a negative item removed that is either inaccurate or over 7 years old can have an immediate and sometimes drastic impact on your credit score.”
Nearly 80% of credit reports contain some kind of error, according to a survey by the U.S. Public Interest Research Group. It is extremely important to not only check your credit report regularly but dispute any wrong information that you may find, he says.
In some cases, if you have a few late payments with a credit card company, they will actually give you a "good will" adjustment, says Kimberly Foss, a certified financial planner and founder of Empyrion Wealth Management.
“Ask and you may receive: a good-will adjustment,” she says. “If you are late, this means a creditor can take one or two late payments off your report. The catch is, you have to ask. And you'll need a good history with the credit card company.”
To make things go even smoother, find out when your balance is reported. All credit card companies have a "balance date." This is when they report amount you owe to the credit bureaus.
“Pay your balance off your card before that date — otherwise you may always pay off your credit card but it will be reported as having a 'balance due' to the credit bureaus,” says Foss.
4. Don’t close credit cards you no longer use
Closing credit card accounts you no longer use decreases the amount of credit that's available to you.
“This, in turn, impacts your credit utilization — or how much credit you use compared to how much credit is available to you,” says Albery. “Instead of closing the accounts, you may want to charge only small purchases on them to keep them active.”
“Whether you make prompt monthly payments or simply lock your card away unused, positive information will be relayed to your credit files at the major credit bureaus each month,” says Odysseas Papadimitriou, CEO and Founder of Evolution Finance and CardHub.com.
In many cases, when it comes to credit cards, "the older the better," is the best rule of thumb, says Foss.
“Resurrect that old gas card and use it again. If you don't use it you don't lose it, they just don't report on it anymore. So use an old gas card or old credit card for small purchases and pay them off quickly and the creditor will start reporting again. It may result in increases your available credit limit and your credit history length, once it is active and being reported to the agencies again,” Foss says.
5. Don’t assume that student debt is good debt
“Because student debt generally comes at a good interest rate, it can be tempting to defer or delay the payoff. But, having excessive debt will hurt your credit score,” says Albery.
Albery says It’s important to have the right balance between paying it off, saving for retirement and paying off a higher interest credit card.
“Be careful not to stray too far from your debt payment plan. While there are good deferral programs available, ultimately your goal should be to pay your student loan debt off sooner rather than later.”
Kathryn Elizabeth Tuggle is a seasoned New York-based personal finance editor and writer who adores saving, investing and thrift store shopping. After getting her start writing about small businesses for the Inc. 500 at Inc. Magazine, Kathryn learned her way around the NYSE and NASDAQ while working at the The Financial Times. In 2007, Kathryn joined the Fox Business Network before its inception and was instrumental in launching the company's small business and personal finance sites. Obsessed with all things spending, saving and social media, you can find Kathryn tweeting her latest adventures with Dimespring at @KathrynLizbeth.