Through December 31, 2023, Experian, TransUnion and Equifax will offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com to help you protect your financial health during the sudden and unprecedented hardship caused by COVID-19.
Last year brought inflated prices and interest rate hikes, both of which put increased pressure on households. Not only is it possible that your budget got tighter in 2022, but the cost of borrowing got higher too. That means paying a higher interest rate on credit cards, personal loans and mortgages.
Fortunately, taking steps to improve your credit can help you lower the cost of borrowing. Whether you're feeling confident or anxious about your finances heading into 2023, your credit score can be a key contributor to whether you'll be able to meet your goals.
Good credit means having a FICO® Score☉ of 670 or higher. The higher your score, the more access you'll have to the most favorable, least expensive loan and credit card options. And good credit can help you in other ways—like by making it easier to rent an apartment, for example. If you're ready to commit to optimizing your credit in 2023, here are 23 ways to do it.
1. Plan to Resume Paying Federal Student Loans
Since March 2020, federal student loan borrowers have not had to make monthly payments, and interest rates have been set at 0%. That forbearance period is currently set to end in summer 2023, or when uncertainties surrounding federal student loan forgiveness are resolved. As it stands now, the status of student debt relief remains unclear. Make sure you keep abreast of the latest news on forgiveness by visiting the U.S. Department of Education's Federal Student Aid website. You can also sign up for email updates on federal student loans.
The most important factor in your credit score is payment history. Help protect your score from the adverse effects of a missed student loan payment by making sure you're prepared for payments to resume. Review your budget to determine whether the resumed payments will stretch you financially. If you're concerned about your ability to afford your loans long term, talk to your servicer about signing up for an income-driven repayment plan.
2. Set Up Automatic Bill Payments
The best way to avoid missing a monthly loan or credit card payment is to put your bills on autopay. Make sure you have enough money in your checking account to cover each bill to avoid an overdraft. When you know you won't have to deal with a sudden score dip after a forgotten bill, you can focus on other ways to improve credit.
3. Pay Down Balances
The second most crucial component in your credit score is your credit utilization, and primarily how much revolving debt you're carrying compared with your total available credit. In 2021, consumers saw a reduction in average credit card balances and, subsequently, their credit utilization ratios. That helped the average U.S. credit score rise to a record-high 714 in 2021—the fourth consecutive year of an increase.
Make it a goal to reduce any high-interest credit card debt first, since that likely costs you more money in interest than, say, an auto loan or federal student loan does. Decreasing your credit card balances also shows potential lenders that you're responsible with credit. Experts suggest keeping your credit utilization below 30% of your credit limit at all times; those with the highest credit scores usually have a rate in the single digits.
4. Handle Debt in Collections
If you currently have an unpaid debt that's gone to collections, consider negotiating it down or disputing the debt if you think it's an error. A debt in collections is likely more than three months past due, and either the original creditor or a debt collector may be contacting you very frequently to get its payment.
You have the right to request the debt collector stop contacting you, but it's in your best interest to deal with the debt: You may pay off the debt in full or work out a negotiated settlement with the lender. Ignoring the debt could mean wrecked credit and potentially a lawsuit, eventually leading to garnished wages or a lien against your property.
5. Get a Credit-Builder Loan
If you're focused on building credit from scratch or recovering after a hit to your score, a credit-builder loan from a credit union could help. You'll make fixed payments for six to 24 months, and your money will sit in a savings account you'll be able to access at the end of the loan term. In the meantime, the lender will report your on-time payments to the credit bureaus, which could strengthen your score.
6. Seek Out a Secured Credit Card
Another option for building credit is to get a secured credit card. It requires a cash deposit, typically around $200, which becomes your credit limit (you may be able to provide a larger deposit for a higher credit line). You can then use the credit card as you would any other, and the deposit protects the issuer from the possibility that you won't pay off your balance. If you use a secured card responsibly, your card issuer could upgrade you to a traditional unsecured card in the future.
7. Join an Account as an Authorized User
You can also improve credit by joining a trusted family member's or friend's credit card account as an authorized user. You'll be able to use the card to make purchases, and the card's payment history will show up on your credit report. That makes it crucial to pick someone whose credit you will benefit from. Work with the primary cardholder to pay them for your purchases, as they'll be ultimately responsible for any balance on the card.
8. Dispute Credit Report Inaccuracies
You can get a free credit report from each of the three main credit bureaus at AnnualCreditReport.com. Check them each carefully, and file a dispute with the appropriate bureau if you find something on your report you believe shouldn't be there, such as an incorrectly reported late payment. You can also report the problem to the appropriate loan or credit card issuer, which may then update the information with the bureaus. Fixing any issues could give your credit scores a lift.
9. Get Credit for Monthly Bill Payments
Experian Boost®ø lets you add eligible on-time phone, utility and streaming payments to your credit report, which may cause your FICO® Score to rise. It's free, but it will only affect your Experian credit report and scores. The average Experian Boost user who sees a credit score increase improves their credit by 13 points.
10. Keep Old Accounts Open
Even if you no longer use an old credit card, it's typically best to keep the account open. That's because your credit scores benefit from a long credit history and a high total credit limit. Closing established accounts will shorten the average age of your accounts and lower your total credit limit.
It will take years before an account closed in good standing drops off your credit report, but the effects on your credit utilization rate are immediate. If a credit card comes with a high annual fee you can't afford, closing the account could be a good option—or ask your issuer to downgrade the card to a no-fee version if possible.
11. Limit New Lines of Credit
When you apply for a new credit card or loan, a hard inquiry will appear on your credit report, possibly leading to a brief dip in your score. Plan to apply only for the credit you truly need, after you've done enough research to understand which accounts you'll likely qualify for—and avoid new loans you may have difficulty paying—so you can help your credit improve.
12. Apply for Loans Within a Short Time Period
Lots of hard inquiries in a short time could be an indication to lenders that you're searching for lines of credit you won't be able to pay. Smart borrowers, though, will apply for a few loans of the same type—such as a mortgage, car or personal loan—to compare rates. For that reason, credit scorers treat multiple hard inquiries of the same loan type made around the same time as one, reducing the negative effects on your credit score. So try to submit applications within a short time frame, ideally two weeks. Keep in mind, though, that the scoring models don't offer this same allowance for credit card applications; all of these will count individually regardless of when you submit them.
13. Pay Off Credit Card Balances Every Month
In addition to lowering existing debt balances, minimize ongoing debt by making it a goal to pay off your credit cards each month. Zeroing out your balance each statement period keeps your credit utilization low, which is one of the best ways to strengthen credit. You'll also avoid incurring interest charges.
14. Track Your Credit Score
When you monitor your credit score, you can intervene quickly if it drops. You can address factors that influence your score, such as high balances, late payments or too many recent hard inquiries. There are many ways to check and monitor your credit score for free, including through your current credit card issuer or bank, or through Experian.
15. Protect Your Personal Information to Avoid Fraud
Your credit can be affected by identity theft if fraudsters access your personal information to open accounts in your name. To help keep your data safe, use a password manager to create and store unique passwords and avoid making financial transactions on public Wi-Fi networks, which could be vulnerable to hackers.
16. Responsibly Add to Your Credit Mix
Lenders look for a mix of accounts in your credit file to show that you can manage multiple types of credit. These include installment loans, for which you pay a fixed amount per month, and revolving credit, which comes with a limit you can charge up to (as is the case with credit cards and home equity lines of credit).
If you only have one type of credit in your file, adding something different could improve your credit mix. But while credit mix accounts for 10% of your FICO® Score, you shouldn't apply for new credit accounts simply to improve your score. That could put you at risk of taking on debt you can't repay.
17. Create a Budget
To help pay off debt and keep your spending in check long term—especially if the chaos of the past few years affected your finances—take time in 2023 to make a budget. This process will offer clarity on the amount you're earning and how much you can safely spend on discretionary items. You'll then be more likely to make smart choices when you're tempted to use a credit card, and you can prioritize limiting your credit utilization.
18. Work With a Nonprofit Credit Counseling Agency
If you feel unsure about how to set up a budget or start attacking debt, a certified credit counselor at a nonprofit agency can provide a free initial consultation to discuss first steps. Credit counselors also offer debt management plans, which can help some borrowers pay down overwhelming debt.
19. Avoid Credit Repair Scams
Some for-profit companies claim to be able to remove negative information from your credit report for a fee. But the truth is that no company can legally erase information from your file if it's accurate. Avoid spending money on credit repair and take tried-and-true steps to improve your score instead, like lowering debt balances and paying your bills on time.
20. Add Rent Payments to Your Credit Report
If you regularly pay rent on time, add those payments to your credit report to boost the amount of positive information reported to the credit bureaus. You can do so by signing up with a service such as Experian Boost, which adds eligible rent payments to your Experian credit report for free.
21. Get a Loan With the Help of a Cosigner
Making on-time payments toward an installment loan, similar to making timely payments on a credit card, helps build credit history. Besides using a credit-builder loan, getting a traditional one such as a car loan can add positive information to your credit report and improve your credit mix.
If you can't qualify for a loan on your own, a cosigner can help—but make sure the cosigner knows what they are getting into. If you can't afford to repay the loan, it becomes their responsibility. Also, as always, only seek out a loan if you really need it, not simply to improve credit. Potentially boosting your score should be an added bonus or motivation, not the central reason.
22. Ask for Credit Line Increases
Increasing the credit limit on your credit card—while maintaining the same amount of spending—lowers your credit utilization rate, which can improve your credit score. Some credit card issuers may automatically increase your line after you've used the card actively and responsibly for a certain period of time. But in other cases, it may be worth it to request a credit limit increase.
Your issuer may pull your credit when deciding whether to grant you an increase, which could temporarily lower your score by a few points, but the long-term benefit of a higher limit could be worth it. Just be sure you don't run up the balance on your card, or your score will likely suffer.
23. Have Patience
Improving credit isn't an immediate process. An excellent credit score is most often the result of years of conscientious financial behavior. While some strategies will let you see small improvements quickly, joining the ranks of those with the highest credit scores will take time. If 2021 brought with it new or continued financial strain after a destabilizing 2020, just commit to doing your best in 2023—and try to avoid moves that could jeopardize your credit score.