How to Improve Your Credit Score

1. Always pay on time.

Payment history heavily influences your credit score. In fact, it is the most influential factor for FICO and Vantage Score. To stay on top of your payments, set up a calendar reminder or enroll in automatic payments. The on-time payment goal applies to all your bills, including utilities, rent and cell phone service.

While late or missed payments can stay on your credit report for seven years, the impact on your credit score decreases over time.  Most negative items have little impact on your score after two years so be patient, keep making timely payments, and you’ll soon be on your way to an excellent credit score.

2. Optimize your credit utilization ratio.

Credit utilization is another key piece of your credit score puzzle. Credit utilization measures the balances you owe on your credit cards relative to your cards’ credit limits. It’s calculated on an overall basis (total balance on all cards divided by sum of credit limits).

The general rule of thumb with credit utilization is to stay below 30%. This applies to each individual card and your total credit utilization ratio. Strategies for improving your credit utilization ratio focus on reducing the numerator (shrinking the balances owed) and managing the denominator (maintaining or increasing the amount of credit available).

3. Regularly monitor your credit scores for inaccuracies.

Identity theft and reporting errors can quickly derail your journey to a great credit score. Sign up for Upgrade’s Credit Health to get your free credit score, credit monitoring, and credit education tools. Check your credit report, available from each major reporting agency once a year for free.

If you catch something inaccurate on your report, follow the steps to dispute the error, like sending a written dispute letter to all three credit bureaus (Experian, Equifax and Transunion).

4. Be strategic about taking on new debt and closing accounts.

Credit scoring models consider your total credit card balances and outstanding loans. Generally speaking, keeping your debt load low is good for your score.

Applying for new credit and loans can also impact your score, since lenders will do a “hard inquiry” on your credit each time you apply. Too many hard inquiries over time may indicate that you’re taking on more debt than you can handle a credit score no-no. However, you shouldn’t be afraid of applying for new debt, under the right circumstances, just because it might affect your score in the short term. After all, the reason you are building excellent credit is so that you can qualify for attractive financing (for example, a low interest rate mortgage when you’re ready to buy a house). As long as you continue to demonstrate that you’re a responsible borrower who makes on-time payments, your score should stay strong over time.

Finally, think twice before closing an old account. Having the available balance will help your credit utilization ratio, and having older accounts on your report can also boost your score.

5. Consider your credit mix.

Your credit mix, the different types of loan products in your credit history, has a lesser influence on your credit score, but is worth considering. Scoring models often take into account your ability to responsibly manage different types of financing, from credit cards to secured loans like mortgages, or personal loans.

If you think your credit mix needs diversifying, consider taking on a low-interest rate loan you know you can pay on time, every time (for example, using an auto loan vs. paying for a car in cash). If you have avoided credit cards altogether, you might think about opening one, charging a small amount each month and paying it off immediately.

While having an attractive credit mix can help you reach an excellent credit score, you shouldn’t take on any financing that you don’t need or can’t handle. Be mindful of your credit mix, but remember: Credit utilization and on-time payments are paramount.