It is more expensive to borrow money in 2024 and more expensive to carry debt. American consumers have now amassed over $1 trillion in credit card debt, and the average household is carrying over $6,000 in credit card debt. With credit card interest rates being as high as 20%, if your credit is not the best, it is costing you more money to use credit and carry debt.
But let’s take it a step further: If you would like to buy a home, mortgage rates are currently at the highest they have been in over 20 years, so in addition to saving for the down payment, buying a home now can be exorbitantly expensive. In fact, your mortgage payment could be significantly higher for the next 30 years.
This is why your credit is more important than ever, because your credit score can determine if you get the best mortgage rate or better credit card offers. Your credit can even be pulled for health insurance, apartment applications, and employment.
According to most banks and credit bureaus, “good” credit is considered a credit score of 670 or higher. The higher your score, the more likely you will be able to get the least expensive loan and credit card offers. In the world of home-buying as it currently stands, having a score over 700 may be the only way to secure the lowest available interest rates.
So what can you do to improve your credit? What should you do if you are stuck in the 640s, 620s, or lower?
Here are a few tips that can help you raise your credit score:
1. Pay on time —every time
On-time payments account for 35% of your score, so paying your bills on time is vital. Your payment history shows potential lenders whether you make payments on time, if you miss payments, or if any of your accounts are past due.
Credit bureaus, lenders and even potential landlords consider your payment history to be your financial report card, showing how consistently you pay your bills. It’s best to have a 100% on-time payment history so lenders feel safe lending to you.
2. Pay attention to your credit utilization
The second most important part of your credit score — 30%, in fact — is your credit utilization, or the amount of available credit you are actually using. Make it a financial goal to pay down any high-interest credit card debt as soon as possible and if you can, also avoid opening any high-interest credit card accounts. I won’t mention the credit card companies in question here, but you know who they are.
Reducing your credit card balances also shows potential lenders that you know how to use credit the right way. Remember, credit is not an extension of your income and should be used only when necessary, when you are earning points or rewards, and when you know you can pay it off quickly. Conventional wisdom advises keeping your credit utilization below 30% of your credit limit at all times; most people with the highest credit scores usually have credit utilization in the single digits.
Those who find themselves stuck in the mid-600s usually have high credit utilization, especially if you are paying your bills on time.
3. Pay off credit card balances in full every month
This might seem like a heavy lift, but remember: You should only be charging what you can afford to pay off anyway.
Paying off your balance each statement period keeps your credit utilization low, which is one of the best ways to improve your credit. Bonus: You will also avoid paying interest charges.
4. Patience
For most, this is going to be the hardest advice to follow. As a financial writer, I often hear, “I need to raise my credit score to buy a house/get a car.” Instead, learn about credit and how it can affect almost every aspect of your life. Once you learn and understand how credit works, it will really change the way that you spend money — and once you get your credit score on the right track, you will not do anything to jeopardize it.
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Jennifer Streaks is Senior Personal Finance Reporter and spokesperson at Business Insider and a financial contributor at The Grio. A nationally recognized expert on money and affordable lifestyle living, Jennifer is an established financial columnist who has been featured on CNBC, Forbes, ABC, MSNBC, CBS, and more.
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