1. Always pay your bills on time
The most important factor for your credit score is payment history. Establishing a history of making payments on time is the best way to indicate that you will handle future debts responsibly. Things that will really harm your credit score: late payments, defaults, repossessions, foreclosures, third party collections, and filing for bankruptcy.
2. Don't use too much available credit
The recommended credit utilization rate is 10% and people with the highest average FICO scores actually have utilization rates of around 7%. FICO scoring systems don't really differentiate between people who pay in full every month versus those who carry a balance. Utilization rates indicate risk, so your rate at the time your issuer reports is the key factor for raising/lowering your credit score.
3. Only apply for credit you need
Remember that whenever you apply for a new line of credit, a hard inquiry will be made on your credit report which will temporarily lower your credit score for up to 12 months. Avoid applying "just in case" or to see if you can get approved (with no intention of actually using the credit) will only hurt your score. Multiple credit inquiries in a short period of time negatively impacts your score as it may appear as though you are taking on too much debt.
4. Don't close old accounts
Long histories of debt or credit records actually help your credit score, especially when you've paid everything off and no longer have debt. The average age of your information and the age of your oldest account are two very influential factors that affect your credit score. Closing accounts will not help your credit score, and may actually hurt it as it will lower your maximum credit limit.
5. Use credit score-boosting programs
If you have only had your accounts for a short period of time, it's much harder to build credit. Patience is really key here, but there are programs for those with limited credit histories that allow customers to boost their credit profiles by providing more financial information. Check out Experian Boost and UltraFICO for boosting your credit quickly.
6. Monitor your credit
If you monitor your credit score every few months, you will be able to better understand how your credit management impacts your score, and what is/isn't working for you. And no, checking your own credit (also called a soft inquiry) won't negatively affect your credit the way that hard inquiries do.
Everybody makes mistakes, including credit bureaus. It's important to check your credit regularly for errors like payments not being recorded or identity theft, for example. You can dispute mistakes with the credit bureau which is obligated to investigate all disputes.
Additional Resources
Want a free copy of your credit report? Use annualcreditreport.com or any of three major credit reporting bureaus (Experian, TransUnion, and Equifax). Through April 2022, you can get free weekly credit reports from any of the three major bureaus.
Wondering what those random codes in your credit report mean? These are called factor codes and are supposed to signal what may be dragging your credit score down. Check out VantageScore's free website ReasonCode.org to learn what codes on your credit report mean, as well as how to fix them.
The most important factor for your credit score is payment history and establishing a history of making payments on time.
We spoke with Vrinda Gupta, founder of Sequin (YC S21), a debit card for women that builds credit.
