Improving your credit score can have a huge impact on your finances. A good credit score makes it easier to borrow money for a major purchase, like a home or vehicle, and qualify for the best interest rates.

Whether you’re building credit from scratch or trying to improve, boosting your credit score in the new year is a doable goal. But achieving an excellent credit score isn’t something that happens overnight. We’ll walk you through the basics of credit scores and give you the tools to make your credit soar in 2024.

What’s a good credit score?

Your credit score is a three-digit number that provides a snapshot to lenders of how responsible you are at managing debt. You actually have many different credit scores, but they’re all based on information in your credit reports from the three major credit bureaus, which are:

• Equifax

• Experian

• TransUnion

Your credit scores are not a measure of your overall financial health. Essentially, they’re intended to show lenders how likely you are to repay the money you borrow.

FICO scores are the most widely used type of credit scores. They typically range between 300 to 850. Here’s a further breakdown of what these scores mean:

• Less than 580: Poor

• 580-669: Fair

• 670-739: Good

• 740-799: Very good

• 800 or higher: Exceptional

The following factors determine your credit score:

• Payment history (35%): The most important FICO score factor is whether you’ve made on-time payments for credit accounts in the past.

• Credit utilization (30%): Your credit utilization ratio is the percentage of your available credit that you’re using. For example, if you have one credit card with a $10,000 limit and the balance is $2,000, you have 20% credit utilization.

• Length of credit (15%): Having a long credit history tends to be good for your FICO scores. FICO considers a number of factors here, including the age of your oldest account and your newest account, the average age of all your accounts, and how long it’s been since you closed certain accounts.

• New credit (10%): When you apply for credit, a hard inquiry appears on your credit report for two years, though FICO scores only consider hard inquiries from the last 12 months. It’s typically best to avoid applying for credit multiple times within a short window to avoid racking up too many hard credit inquiries.

• Credit mix (10%): Having different types of credit, like a credit card, a mortgage, and an installment loan is generally good for your credit score.

Your scores will likely vary somewhat depending on which bureau is providing the information. Also, it’s normal for credit scores to fluctuate slightly from month to month.

Not everyone has a credit score, though. If you haven’t had an account that reports to the bureaus, like a credit card or loan, within the last six months, the bureaus might not have enough information to calculate your credit score.

10 ways to improve your credit score in 2024

If you’re ready to start improving your credit in 2024, follow this roadmap.

1. Look for errors on your credit reports

Your credit reports won’t show your credit scores, but they’re the source of the information that’s used to calculate your scores. If you discover errors and have them removed, you might see your credit score go up.

You can get a free credit report each week from AnnualCreditReport.com, but it’s usually not necessary to check your credit reports that frequently. A good practice is to review each of your credit reports at least once a year, or every few months if you’re planning to finance a major purchase soon. You should also check your credit reports whenever you’re notified that you were part of a data breach or if you think your personal information was compromised.

Some examples of things to look out for when you check your credit reports:

• Errors in your identifying information, like your name, phone number, or address

• Accounts you don’t recognize or that incorrectly list you as the owner

• Payments listed as late that you made on time

• Incorrect balances or credit limits on your accounts

• The same account listed multiple times (which sometimes happens with name changes or when an account goes to collections)

• Hard inquiries for new accounts that you didn’t apply for

Should you discover mistakes on your credit reports, dispute them as soon as possible with the bureau that provided the report. Your credit report will provide information about how you can do so.

2. Pay your bills on time

Making on-time payments is the No. 1 thing you can do to build a good credit score, as payment history is the top credit score factor. Just one late payment (defined as 30 days or more past the due date, though late fees are often charged immediately) can cause your credit score to nosedive. Past-due or missed payments usually stay on your credit reports for seven years, though the impact on your credit scores fades over time.

You’ll only build payment history for accounts that report to the credit bureaus, like credit cards and personal loans. Unfortunately, paying your electric bill or cell phone on time each month is unlikely to help your credit because these payments are seldom reported to the bureaus. However, if you become delinquent on one of these expenses and the account goes to collections, you’ll damage your credit score.

3. Ask a loved one to make you an authorized user

An authorized user on a credit card is someone who has permission from the primary account holder to make purchases, but isn’t responsible for payments. Becoming an authorized user on an account owned by someone who has good credit can give your credit a lift. On the flipside, it could hurt your credit if the account holder misses payment or maxes out their card.

If you have a loved one who’s financially responsible, ask them if they’d let you piggyback on their creditworthiness by becoming an authorized user. Just don’t abuse the privilege if they say yes. Get their permission before actually making any purchases with their card.

4. Get a credit card if you don’t have one

It’s a Catch-22: Building credit without a credit card is challenging, but getting approved for the credit card you need to start building credit is also hard.

If you don’t already have your own credit card, you’re going to want to get one in order to build a top-notch score. Some options if you’re seeking your first credit card (or you haven’t had a credit card in a while):

• Secured credit cards: Getting approved for a secured credit card is fairly easy because you pay a refundable security deposit that becomes your line of credit. Many secured cards include the option to upgrade to a regular credit card after you’ve built a history of on-time payments.

• Unsecured starter credit cards: Some unsecured credit cards (meaning they don’t require a deposit) are designed for people who don’t have much of a credit history or who have bad credit.

• Store credit cards: Retail credit cards — specifically, closed-loop credit cards that can only be used at a specific store — are often easier to qualify for than regular credit cards, though the requirements can vary widely depending on the retailer.

• Student credit cards: If you’re enrolled in school, getting a student credit card is a good way to build credit, as these cards are designed specifically for people with a limited history.

When you get approved for your first new credit card, you’ll typically have a low credit limit and a high annual percentage rate (APR). The reason is that lenders perceive a borrower who’s new to credit as a greater risk.

Aim to only charge what you can pay off in full by the due date so you won’t be charged interest. Also, try to keep your credit utilization rate below 30%. For instance, if you get approved for a card with a $300 limit, don’t let the balance exceed $90.

5. Look for a credit-builder loan

You can also establish credit through a credit-builder loan, which is like a loan in reverse: You pay your financial institution each month, and they report the payments to the credit bureau. But unlike a regular personal loan, you get the money at the end of the term after making all payments, instead of the beginning.

Credit-builder loans typically have terms ranging from six to 24 months. You’re most likely to find them at smaller community banks and local credit unions.

6. Request a credit limit increase

Once you’ve proven your creditworthiness — or if you already have a credit card and a solid payment history – consider asking your card issuer to increase your credit limit. By having more open credit, you’ll automatically decrease your credit utilization as long as you don’t increase your balance. You’ll typically want to wait at least six months before making this request, though.

7. Get your rent payments in front of the credit bureaus

Most landlords don’t report rent payments to the credit bureaus, so even the best rental history won’t normally boost your credit score. But the credit bureaus will report your rental history if they have it.

Several rent reporting services relay your rent payment info to the credit bureaus. You’ll probably need your landlord to enroll, and many of these services charge a small fee that you’re responsible for paying. The cost may be worth it, though, to show your track record of paying what’s likely one of your largest bills on time.

How this information is handled depends on the credit scoring model. FICO’s newer scoring models incorporate rental payments when they’re reported, but the older models that are still used for mortgages don’t take rental history into account. VantageScore, an alternative type of credit score, incorporates rental payments when they’re available into all of its credit scoring models.

8. Avoid closing old credit cards

Because length of credit determines 15% of your credit score, avoid closing old credit cards unless you have a compelling reason, like the card has a high annual fee. Even if you have other credit cards with better rewards programs, use your older cards for the occasional purchase or a small recurring bill.

9. Pay off debt strategically

Not all debt payoff benefits your credit score equally. Paying off your credit cards usually helps your score more than paying off loans. That’s because when you pay off a credit card, you lower your credit utilization, which is the second-most important credit score factor. Since credit cards typically charge higher APRs than loans, you can also save money on interest.

However, if you have any loans that charge exorbitant interest rates, pay those off first before you tackle credit cards. For example, payday loans frequently charge APRs of nearly 400%, which can leave you trapped in debt. Your credit score is unlikely to benefit from getting rid of payday loans, as most lenders don’t report to credit bureaus, but your personal finances will be much healthier for it.

10. See if a debt consolidation loan will save you money

A debt consolidation loan is a personal loan that you use to lump several high-interest debts into a lower-interest loan with a single monthly payment. For example, if you had three credit cards with interest rates of 16%, 18%, and 21%, but you qualified for a personal loan with a 10% APR, consolidating debt with a personal loan could save you money. Since you’d lower your credit utilization, your credit score would likely benefit, as well.

Considering that interest rates are at a 22-year high going into the new year, so 2024 may not be the best time for debt consolidation. But if you’re juggling multiple high-interest credit card accounts, you could still save money and improve your credit score.

Make sure you consider the interest savings from debt consolidation for the long term. Some debt consolidation loans lower your monthly debt payments but cause you to pay more interest over time because they have longer repayment terms.

How to keep building good credit

Once you have good credit, you want to keep that momentum and watch your score climb even higher. You’ll often find that once you’ve established your creditworthiness and have good financial habits, your credit score will continue its upward trajectory. Sticking to a budget and keeping your debt levels manageable are key to maintaining a healthy credit score.

As you rack up a history of on-time payments and keep your credit card balances low, your score will continue improving. As credit card companies see over time that they can trust you to repay money, they may even automatically increase your credit limits, often boosting your score even further.

Building good credit is a long-term game. If you stay focused and take baby steps, you can make 2024 the year your credit score shines.

Frequently asked questions (FAQs)

What is the quickest ways to improve your credit score?

The quickest ways to improve your credit score are usually to dispute inaccurate information, pay off revolving credit balances, and increase your credit limits.

What is the average credit score?

The average FICO credit score is 714, according to Experian. A 714 credit score is in the “good” score range for FICO.

How many people have an 800 credit score?

About 21% of adults with a FICO score have a score of 800 or higher, which is considered “exceptional” credit. Only 6% of people in this cohort have late payments on their credit reports. The average credit utilization among this group is 11.5%.