Best Ways to Increase Your Credit Score | M&T Bank | Best Ways to Increase Your Credit Score (2024)

A strong credit score is more than just a number; it's essential to financial health, particularly for homeowners looking to secure favorable loan terms. Whether you're aiming to buy your next home, finance a car, or simply prepare for unforeseen expenses, a good credit score can be your ticket to better interest rates and more financial opportunities.

So here are a few strategies to consider if you’re seeking to boost your credit score.

Understanding your credit score

A credit score is a numerical representation of your creditworthiness — or in other words, your reliability as a borrower. What determines your score? It generally depends on various aspects of your credit history, such as:

• Payment history:According to Experian, this is the most influential factor, accounting for about 35% of your credit score. It reflects whether you have paid your past credit accounts on time. For example, consistently paying your mortgage, credit card bills and car loans on time boosts this aspect of your score, but missed or late payments can harm your credit rating.
  
• Credit utilization:This factor makes up approximately 30% of your score and measures how much of your available credit you’re using. Keeping this ratio low demonstrates you aren’t overly reliant on credit and can manage your finances prudently.
• Length of credit history:Comprising about 15% of your score, this factor considers the age of your oldest and newest credit accounts, as well as the average age of all your accounts. Longer credit histories tend to have a positive effect on your score, as they provide more data on your spending habits and repayment behavior.
• New credit inquiries:Each time you apply for new credit, a “hard inquiry” is recorded on your credit report which can temporarily lower your score. This factor accounts for roughly 10% of your credit score. If several inquiries are made within a short period, it suggests to creditors that you may be in a financial bind.
• Credit mix: Also influencing about 10% of your score, this looks at the diversity of your credit accounts. A healthy credit mix might include a combination of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.
  

Strategies to improve credit

To enhance your credit score, consider the following actionable strategies:

1. Review your credit report
   The first step in improving your credit is knowing where you stand. Obtain a free credit report from each of the three major credit bureaus: Equifax, Experian and TransUnion. Review these for any inaccuracies or old debts that should be corrected.
2. Ensure consistent on-time payments
   Timely bill payment is the most critical factor affecting your credit score. Consider setting up automatic payments for regular expenses like loans and credit cards to avoid missed payments.
3. Reduce credit utilization
   Keep your credit card balances low. Financial experts recommend maintaining a credit utilization ratio below 30%. This means if your credit limit is $10,000, you should strive to owe less than $3,000 at any time.
4. Increase your credit limit
   Increasing the credit limit on your existing accounts can improve your utilization ratio, provided you don’t increase your spending. A higher credit limit across your accounts with the same or lower balance can positively affect your score.
5. Become an authorized user
   Consider becoming an authorized user on a family member's or a friend's credit card, especially if they have a strong payment history. This means you can make purchases with the credit card as if it were your own. Even if you don’t use the card, it can boost your credit score as the account’s history will be added to your credit profile.
6. Add to your credit mix
   Diversifying your types of credit can positively influence your score. If you only have credit cards, consider adding a personal loan or a retail account, as long as you can manage them responsibly. The key is maintaining a good standing across all accounts.

   Improving your credit score doesn't happen overnight. It requires consistent effort and smart financial habits. By implementing these strategies, you're not just boosting your score, but paving the way towards a financially secure future. Whether it's buying your dream home or a new car, a higher credit score can help make your financial goals a reality.