A good credit score does more than gauge your reliability as a borrower. More broadly speaking, the stronger your credit score, the better your financial prospects. This means better interest rates on loans and greater financial flexibility are potential benefits of outstanding credit.
Simply put, when it comes to improving your credit score, there’s a lot at stake.
“Strong credit is crucial because it grants you access to financial opportunities,” offers Lakhbir Lamba, PNC’s Head of Retail Lending. “A strong credit score improves your chances of securing housing and employment, potentially lowers insurance premiums, provides a safety net during emergencies, and sets the stage for long-term financial well-being.”
Even if your credit score isn’t great, don’t be intimidated. You can take simple, easy steps to improve your standing in the eyes of creditors. If you’re just starting on this journey, Lamba has wisdom to share.
“Start small and be patient: Improving your credit takes consistent effort. Break down your goals into manageable steps and focus on one aspect at a time. Celebrate small victories along the way to stay motivated.”
Let’s get started. With a little time and discipline, you’ll be surprised at how much your score can rise.
So, What IS A Credit Score?
One of the most common credit scores is known in financial circles as a FICO® score. This three-digit number, between 300 and 850, provides lenders and other financial institutions an overview of your credit history. The higher your score, the stronger your credit, and the more options you have available to borrow money.
The algorithm for determining an individual's FICO score might vary slightly among the three credit bureaus—Equifax, Experian, and Transunion. Each bureau assesses your payment history, how much (and what types of) credit you have, and how long you've used credit.
“As the saying goes, knowledge is power,” Lamba continues. “So, learn your credit score by obtaining your credit reports from the three credit reporting agencies. Review those reports carefully for errors and discrepancies. And be sure to dispute any inaccuracies, so that your credit information is correct.”
Once you’ve laid that crucial groundwork, here are five tips for achieving (or maintaining) a great score and becoming more attractive to lenders.
Pay Your Bills on Time, Every Time
Above all, a lender wants to know that you consistently pay what you owe. This means timely payments are the cornerstone for excellent credit. Make all loan and bill payments by their due dates, even it means just making the minimum payments each month.
Hey, life happens, and we can all forget from time to time. Lamba suggests a pro tip for keeping track: “Keep payment due dates as ongoing calendar reminders. Or consider setting up automatic bill payments with your financial institution. Those are easy ways to ensure you never miss a payment.”
Maintain a Low Balance
An important part of your credit score is based on your debt-to-credit utilization ratio—simply put, how much debt you have compared to how much credit you can access. For example, if you have a $300 balance on a credit card with a $1,000 limit, you'd have a debt-to-credit utilization ratio of 30% on that card.
If you have multiple credit accounts, it’s important to know your total ratio across all those accounts. As an example, let's say you have one credit card with a $1,000 limit and a $300 balance, plus another card with a $500 limit but no balance. Your credit limit would be $1,500, spread across two cards, so your debt-to-credit utilization ratio would be 20%.
As a general rule, a debt-to-credit utilization ratio under 30% is ideal for maintaining a good credit score. Also, it’s important to avoid maxing out your cards. That signals to creditors that you are facing financial stress. As Lamba explains, “Focus on paying down your debts, starting with those that carry the highest interest rates, to lower your credit utilization and improve your creditworthiness.”
Keep Your Oldest Account Open and in Good Standing
This might seem opposite to conventional wisdom, but don’t close your oldest account, even if you’ve completely paid off your debt.
The length of your credit history plays a key role in your credit score — and the older your credit accounts, the better. Closing your oldest account makes your credit history look shorter than it really is, which can then lower your score. Consider your financial goals: if it makes sense to do so, keep your oldest account open and in good standing so it is an asset to your score.
Avoid Too Many Credit Applications
Looking to borrow money? Do your homework ahead of time and really be selective before applying. The reason for this is simple. With each application, potential lenders make what's called a “hard inquiry," which means they pull your credit information. Whenever this happens, your credit score could take a brief hit.
If it’s one or two applications, that may not have a significant impact on your score. But several inquiries over a short period could lower your score for up to a year.
By the way, if you're concerned about other credit checks — for example, when you sign up for a new utility, or you request a copy of your credit report — you don't need to worry about your score. These “soft inquiries" don't impact your credit.
Monitor Your Credit Report.
Sure, we recommended pulling your credit reports at the beginning of your journey. But once you raise your credit score, it’s important to safeguard it, too. That means spotting and removing any mistakes that could negatively affect your score.
It's a good idea to check on your credit score and credit history yearly--or before you apply for any new car loan or mortgage. And if you find an error, notify each of the three credit bureaus — Equifax, Transunion, and Experian — so they can investigate.
Think of it as your annual checkup, just the way you would a visit to your doctor or dentist. Your financial health could depend on it. Now that you’re on your way to building stronger credit, Lamba has some additional encouragement and advice.
“Everyone’s financial journey is different. That makes it important to understand your specific circumstances and exercise your best judgment. While boosting credit scores might be straightforward from some, others might need the additional help of a certified financial planner, credit counselor, or other financial professional.
“Improving your credit is a gradual process, and setbacks may occur along the way. Stay motivated, be consistent, and celebrate your progress, no matter how small. Over time, your efforts will pay off, and you'll see positive changes in your creditworthiness and financial well-being.”
Click here to learn about lending solutions at PNC. Whether you're looking to start the home-buying process, pay for school, consolidate your debt or something else, we'll help you find the right solution to achieve your goals.