Improving your credit score can make it easier—and cheaper—to borrow.
Fidelity Viewpoints
Key takeaways
Building a strong credit history takes time. That's why it makes sense to adopt good credit habits even if you aren't planning to apply for new loans in the near future.
To help improve your credit, make sure to pay your bills on time and try to only use a portion of the total credit available to you.
Following a budget, keeping an emergency fund, and avoiding taking on too much debt in the first place can make it easier to care for your credit.
Keeping up a solid credit history and good credit score is a bit like staying in shape—you have to work at it regularly to stay at the top of your game. If you wanted to run a marathon, you wouldn't wait to start training until it was a month away. Similarly, you don't want to neglect your credit until you're about to apply for a major loan.
Instead, try to incorporate good credit habits into your regular financial routines. That way, if or when you need to apply for new credit, you should already be in a strong position. Read on for 8 habits to consider adopting to help raise your credit score.
1. Never miss a bill due date
Paying your bills on time is the cardinal rule of maintaining a good credit score. That's because your payment history—meaning whether you've paid your past credit card and other loan bills on time or not—is typically one of the most important contributing factors to your credit score.1
If you have trouble staying on top of bill dates you can consider:
Enrolling in autopay. That way you can make your payments on time automatically.
Registering for billing alerts. These can give you an extra reminder before your payment is due.
Creating a DIY reminder system. Set up recurring alerts on your calendar, or make sure bill emails stay at the top of your inbox until you've paid them.
Which strategies you use may depend on what your credit card, lender, or other service provider offers (i.e., not all bills may be eligible for autopay or alerts). But make sure to find a system that works for you.
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2. Keep your balances low
If you have revolving lines of credit, such as credit cards or a home equity line of credit, try to make sure you only use a portion of the total credit available to you. One rule is to make sure your outstanding balance is never more than 30% of your credit limit, like staying at or below a $3,000 balance on a credit card with a $10,000 limit.
That ratio is called your credit utilization, and it's typically another important contributing factor to your credit score. All else equal, using less of the total credit available to you should help your credit score.
3. Think twice before closing old cards
Another contributor to your credit score is the average age of your credit accounts. The longer the average age, the better for your credit (because it shows you have more experience managing debt and means lenders have a longer track record for you to evaluate).
That's why it may make sense to keep old credit cards open, even if you don't actively use them anymore. (However, closing a card could still be the right move if it charges an annual fee or if keeping it open creates a temptation to overspend.)
When you apply for a new credit card or loan, the issuer or lender will generally make a so-called "hard inquiry" into your credit. These inquiries hurt your credit, though they typically only affect your credit score for a year (and stay on your credit report for only 2 years).2
You can help reduce the negative impact of hard inquiries on your credit by:
Thinking twice about opening new credit cards. Make sure a new card is the right move for you long-term before you apply.
Avoiding hard inquiries if you'll be applying for a major loan soon. If you're planning to buy a house in the next year, it might make sense to avoid new cards altogether.
Being efficient when rate shopping. If you're shopping around for the best interest rate on a new loan (like a mortgage), try to submit all your loan applications around the same time, like within a 1- to 2-week period. Credit scoring models will generally only ding you once—even if you submitted multiple loan applications—if it's clear that you were rate shopping.3
Finally, know that checking your own credit is not considered a hard inquiry and so won't hurt your credit score.
5. Consider a well-rounded credit history
To reach a top-tier credit score, it can help to show that you have experience with a variety of types of credit—such as credit cards, auto loans, mortgages, and home equity loans—instead of only one type (such as only credit cards).
This doesn't mean you should borrow money that you don't need. But if taking on a new type of loan makes sense within your broader financial plan, know that it might also benefit your credit over the long term.
6. Check your credit report regularly
You're entitled by federal law to a free annual credit report from each of the 3 major credit reporting agencies: Equifax®, Experian®, and TransUnion®. When you check your report, keep an eye out for anything amiss, such as:
Incorrect account details—like a payment reported as late that you're sure you made on time
Overlooked past-due accounts—such as a forgotten old balance that you need to resolve
Evidence of fraud or identity theft—like a credit inquiry that you don't recognize
Consider checking one report every 4 months to keep regular tabs on your credit.
7. Dispute any errors you find
If you do ever find incorrect information on your credit report, try to get the information corrected. That typically means both filing a formal dispute with the credit reporting agency and pursuing the issue with the relevant creditor.
Although the process might take some legwork, it can be worth it to make sure your credit history provides a fair and accurate picture of you as a borrower.
8. Keep your broader finances in shape
It can be easier to stay fit when you lead a healthy lifestyle. Similarly, it can be easier to maintain a good credit score when you keep other areas of your finances on track. To adopt a healthy financial lifestyle, consider:
Following a budget. We recommend the 50/15/5 budget, which limits essential expenses to 50% of your take-home pay.
Avoiding getting over-stretched by debt. One guideline is to make sure your total debt payments don't exceed 36% of your income.
Making sure you have an adequate emergency fund. Try to keep 3 to 6 months' worth of living expenses in emergency savings, so that you don't need to rely on credit cards if something unexpected comes up.
Stick to these habits and pretty soon, minding your credit may become second nature.
Want to see how your financial fitness stacks up? Consider getting a financial checkup or trying one of our budgeting and debt management calculators and tools. You can also learn more about strategies for paying down debt, and best practices for managing your credit cards.
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Good credit habits (like paying your bills on time and keeping your credit use low) can help you improve your credit in general, which may also help your FICO® Score 8. If you have low or no credit, you can build your credit history with the Discover it® Secured Credit Card.
Recurring late or missed payments, excessive credit utilization or not using a credit card for a long time could prompt your credit card company to lower your credit limit. This may hurt your credit score by increasing your credit utilization.
Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.
There may be ways to build your credit fast if your score is lower than you'd like. Depending on what's holding it down, you may be able to tack on as many as 100 points relatively quickly. Scores in the "fair" and "bad" areas of the credit score ranges could see dramatic results.
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