How to Build Your Credit Score to 850

Having a good credit score is important for many individuals who use or plan to use consumer loans, as well as those who might work in certain fields that value employees having good credit. Ultimately the value of good credit is access to better loans in the form of lower interest rates. Being able to access and obtain lower interest rates on loans may save you thousands, if not hundreds of thousands, in interest payments. Below are some tips for increasing your credit score.

1. Build a Strong Credit History

Having a stable and positive credit history will increase your credit score. If you can show lenders you have a track record of reliably using debt, it signals that you are a dependable borrower. If on the other hand, you don’t have an established credit history, it would be a good idea to establish a line of credit. Establishing a line of credit can be done by taking out a small consumer loan or a fee-free credit card. Once you have access to credit, it is in your best interest to use it responsibly. If you have bad credit, with time and the right actions you will be able to repair or rebuild your credit score.

2. Pay Your Bills on Time

You may already be aware that paying bills on time is a positive sign of financial health. However, it is important that you do not skip bill or debt payments, even if you are having financial difficulties. If you are unable to make payments on time, call your lender and ask for an extension. Most creditors will be willing to work with you—especially if you have been paying on time throughout the lending period. (For related reading, see: How Not Paying Cable Bills Could Hurt Credit Score.)

3. Avoid Using More Than 30% of Your Credit Limit

Avoid using more than 30% of your credit card limit. For example, if you have a $10,000 limit on a credit card, carrying a balance greater than $3,000 negatively impacts your credit. Carrying a balance of credit over 30% is a red flag to lenders and potential employers. 

4. Avoid Making Loan or Credit Applications Unnecessarily

Whenever someone pulls your credit report or wants to access your score, it could generate either a soft or a hard credit hit. While soft hits don’t hurt your credit, hard hits will reduce your score. Hard hits occur if a financial institution pulls your credit when you are applying for a credit card, loan, mortgage, etc. If you have to provide a lender with authorization to check your credit, then it’s probably going to be a hard hit. So when applying for loans, be specific, do your research, and be cautious when allowing multiple lenders to check your credit. (For related reading, see: Credit Score: Hard vs. Soft Inquiry.)

5. Make a Habit of Checking Your Credit Report

Check your credit report at least once a year. A common misconception that many individuals have is that pulling your credit report hurts your score. This is not true. Checking your own credit report or score does not affect your credit score. Monitoring your credit helps you to keep track of how of things are going. Think about it. If you are trying to lose (or gain) weight, you will occasionally weigh yourself to see if you are making progress with that goal. Checking your progress with your credit score is no different. Today, many banks, credit card companies, and third-party companies offer access to a free credit report.