5 Ways to Build Your Credit Score in 2023 - NerdWallet (2024)

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You’ve got big financial plans for 2023. Maybe they include buying a home or car, or getting a new travel rewards credit card to help pay for your next trip. There’s a key piece of these plans you may not have considered: building your credit score.

A better credit score can expand your access to credit and make borrowing more affordable. For example, having a score of 700 versus 650 could mean getting approved for a new car loan at 4.9% interest instead of 7.25% interest.

So what can you do to get your score in shape? Here are a few ways experts suggest boosting credit in the new year.

1. Pay off holiday debt

When holiday festivities conclude, you might be stuck with leftover debt from food, travel and gift purchases (on top of regular bills, of course).

If missed payments or large balances carry over into the new year, your credit score could suffer. Payment history (whether you pay bills on time) and credit utilization (the amount of credit you’re using compared with your limit) are the two biggest factors that affect your credit score.

So make a plan to pay down your holiday debt. Start by reviewing your account statements to understand exactly how much you owe and how much you can afford to budget for repayment, says Jeff Arevalo, a financial wellness expert at GreenPath, a nonprofit credit counseling agency based in Farmington Hills, Michigan.

“If you're only paying minimums, unfortunately, it’s going to take you a longer time to pay the debts. Interest rates have increased, and so paying minimums is not a recipe for success,” Arevalo says. Knowing your budget allows you to see if you’re in a position to make more than the minimum payments on your debts, he adds. Perhaps you earned an extra paycheck in December or a holiday bonus that you can put toward debt.

One strategy to consider is paying above the minimums on your most recently opened accounts first, says Todd Christensen, education manager at Money Fit, a nonprofit debt relief service based in Boise, Idaho. Christensen says this strategy, which he refers to as “debt landslide,” can build credit since FICO and VantageScore scoring companies give more weight to activities on new and recently used accounts.

“Paying down balances on new accounts will help build credit faster than paying down the balance on all accounts,” Christensen says.

Protect your credit score in 2023 by setting up automatic payments or payment reminders to help you pay bills on time going forward.

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2. Don't apply for credit too often

Applying for new credit multiple times in a short period can raise a red flag and negatively impact your score. With each application, you’ll get a hard inquiry on your credit that may cause your score to drop a few points.

“If I'm applying for a credit card once or twice a month, that's kind of showing the credit scoring model that I'm desperate,” says Kate Mielitz, an accredited financial counselor in Olympia, Washington. “Desperation is not a good look in credit.”

Lenders that view you as a risk may reject your application or offer less desirable terms, such as high interest rates. Think carefully before applying, especially if you plan to make a decision involving credit — like applying for a mortgage — within the next few months.

3. Raise your credit limit

Ask issuers to increase your credit limits on existing accounts. Higher limits will lower your utilization, as long as your spending doesn’t creep up. To build your score, experts recommend keeping your utilization under 30% of your limit.

4. Make rent and utility payments count

Not all credit scoring models factor rent or utility payments into your score because this information typically isn’t on your reports. But if you lack credit history, there are services you can use to report on-time payments and build credit. Some rent reporting services, like Piñata, are free. Others may charge you or your landlord.

“The thing to watch for is fees, that's the main thing, and that they actually report to one or more credit reporting agencies,” Christensen says.

Experian Boost, a free feature from Experian, one of the three major credit bureaus, gives you the option to report rent, utility and streaming service payments made from your connected bank accounts.

5. Inspect your credit reports

Credit reports are records of your credit history. Staying on top of your reports is crucial because scoring companies use the information on them to create your scores. If a mistake on a report is dragging your score down, such as a reported late payment that you actually paid on time, take quick action to dispute the error with the pertinent credit bureau.

“Some people worry that the report is kind of long, there's a lot of abbreviations and things like that. But like with anything in life, I think it's not as intimidating once you kind of get used to it,” Arevalo says.Make checking your credit reports a regular habit. AnnualCreditReport.com offers free weekly reports through the end of 2023.

This article was written by NerdWallet and was originally published by The Associated Press.

5 Ways to Build Your Credit Score in 2023 - NerdWallet (2024)

FAQs

5 Ways to Build Your Credit Score in 2023 - NerdWallet? ›

It may take you 4 months to a year to reach the credit score of 700. Your credit score improvement is completely dependent on your financial activities.

How can I improve my credit score in 2023? ›

How can I improve my credit score?
  1. Pay your bills on time. Payment history is a significant factor in your credit score. ...
  2. Reduce your credit utilisation ratio. Your credit utilisation ratio is the amount of credit you use compared to your credit limit. ...
  3. Apply for credit sparingly. ...
  4. Use secured credit cards.
Mar 9, 2023

How to get a 720 credit score in 6 months? ›

To improve your credit score to 720 in six months, follow these steps:
  1. Review your credit report to dispute errors and identify areas for improvement.
  2. Make all payments on time and avoid applying for new credit.
  3. Lower your utilization ratio by paying down balances, increasing credit limits, or consolidating your debt.
Jan 18, 2024

How to push past 750 credit score? ›

6 easy tips to help raise your credit score
  1. Make your payments on time. ...
  2. Set up autopay or calendar reminders. ...
  3. Don't open too many accounts at once. ...
  4. Get credit for paying monthly utility and cell phone bills on time. ...
  5. Request a credit report and dispute any credit report errors. ...
  6. Pay attention to your credit utilization rate.

Can you build a 700 credit score in 3 months? ›

It may take you 4 months to a year to reach the credit score of 700. Your credit score improvement is completely dependent on your financial activities.

How can I raise my credit score by 100 points in 3 months? ›

Strategies to increase your credit score in 3 months
  1. Know your credit score. ...
  2. Pay all bills on time. ...
  3. Stay within your credit limit. ...
  4. Dispute credit report errors. ...
  5. Increase credit history. ...
  6. Avoid repeated credit inquiries. ...
  7. Pay down debt. ...
  8. Seek professional help.
Nov 10, 2023

What is an excellent FICO Score in 2023? ›

For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750.

Does paying off collections improve credit score? ›

For some credit scoring models, paying off collection accounts may improve credit scores. FICO® Score 9, FICO Score 10, VantageScore® 3.0 and VantageScore 4.0 credit scoring models penalize unpaid collection accounts. Paying off collection accounts may help improve these scores.

How rare is a 720 credit score? ›

Who Has a 720 Credit Score?
Credit ScoreTierPercentage of Americans
720 – 850Excellent38.12%
660 – 719Good17.33%
620 – 659Fair/Limited13.47%
300 – 619Bad31.08%

How to raise your credit score overnight? ›

How to Raise Your Credit Score 100 Points Overnight
  1. Become an Authorized User. This strategy can be especially effective if that individual has a credit account in good standing. ...
  2. Request Your Free Annual Credit Report and Dispute Errors. ...
  3. Pay All Bills on Time. ...
  4. Lower Your Credit Utilization Ratio.

What increases credit score? ›

Ways to improve your credit score

Paying your loans on time. Not getting too close to your credit limit. Having a long credit history. Making sure your credit report doesn't have errors.

How to fix a bad credit score? ›

How to improve your credit score
  1. Check your credit report for errors. ...
  2. Prioritize paying on time. ...
  3. Work to pay down your debts. ...
  4. Become an authorized user. ...
  5. Request a credit line increase. ...
  6. Handle debt in collections. ...
  7. Consider opening a secured card. ...
  8. Get credit for other payments.
5 days ago

What is the average credit score by age? ›

Average VantageScore 3.0 score by age
Age groupAverage VantageScore 3.0 score
Gen Z (1997+)669
Millennial (1981-1996)677
Gen X (1965-1980)696
Baby boomer (1946-1964)738
1 more row
Mar 7, 2024

Should I pay off my credit card in full or leave a small balance? ›

It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.

Why is my credit score going down when I pay on time? ›

Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed.

Why did my credit score drop 40 points after paying off debt? ›

It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.

How can I improve my drastically credit score? ›

How to Build Good Credit
  1. Review your credit reports.
  2. Get a handle on bill payments.
  3. Use 30% or less of your available credit.
  4. Limit requests for new credit.
  5. Pad out a thin credit file.
  6. Keep your old accounts open and deal with delinquencies.
  7. Consider consolidating your debt.
  8. Track your progress with credit monitoring.

Can my credit score improve in 3 months? ›

But take note that credit payment activity normally only happens once a month. Three months is, therefore, a short period to drastically improve the credit score. If, for example, the payment history was poor over a long period, the credit score will only gradually improve over time.

How to get an 800 credit score in 1 year? ›

To reach an 800 credit score, you'll want to demonstrate on-time bill payments, have a healthy mix of credit (meaning accounts other than just credit cards), use a small percentage of your available credit, and limit new credit inquiries.

How can I raise my credit 200 points in a year? ›

How to Raise Your Credit Score by 200 Points
  1. Get More Credit Accounts.
  2. Pay Down High Credit Card Balances.
  3. Always Make On-Time Payments.
  4. Keep the Accounts that You Already Have.
  5. Dispute Incorrect Items on Your Credit Report.

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