5 Simple Steps to Improving Your Credit Score

Your credit rating is used to help lenders decide whether to lend you money, how much to let you borrow and, in some cases, how much interest to charge you. Clearly it’s best to avoid those things that can have a negative impact on your credit rating in the first place.

Here are five steps you can follow to improve you credit score:

1. Pay your bills on time — and keep those bills in check

Your ability to pay your bills on time is perhaps the single largest factor in determining your overall credit score, and avoiding late payments can help your score go up. But there’s more to it than that. Often, we’re late on our bills not because we forget to mail in our checks, but because we don’t have the money on hand to pay for them. The best way to avoid late payments is to create a budget and avoid buying things you know you won’t be able to pay for come month’s end. Remember, as a retiree, you’re less likely to see your income go up over time, which means if you can’t afford something this month, there’s a good chance you’ll get stuck paying it off with interest.
2. Study your credit report

Many people are surprised to learn that approximately 20% of U.S. credit reports contain errors, and it’s somewhat rare for those errors to work out in your favor. One of the easiest ways to increase your credit score is to examine your credit report, identify errors, and take the time to get them fixed. You’re entitled to receive a free copy of your credit report every 12 months from each of the three major bureaus, TransUnion, Experian, and Equifax, so order yours and study it like you’re cramming for the most important exam of your life. If you spot a mistake, inform the bureau in question of its error in writing and provide documentation supporting your claim. Correcting an error could give your credit score an instant boost without having to make any financial moves or sacrifices in the process.

3. Pay off small debts

You may not have the money to pay off your mortgage or wipe out a whopping medical bill, but if you have a small balance on one of your credit cards, paying it off might be more feasible. And eliminating even small amounts of debt is important because that can reduce your credit utilization ratio, which is the percentage of available credit you’re using. A credit utilization ratio of 30% or lower is ideal, which means that if you’re allowed to borrow up to $10,000, you’ll want to cut yourself off at $3,000 or risk having your credit score dinged. If paying off a small debt knocks you below that 30% mark, you could easily see your credit score go up.

4. Ask for more credit — but don’t use it

Speaking of credit utilization ratios, another way to get yours into a more ideal state is to ask your credit card companies to increase your credit limit. The catch, however, is that you can’t actually take advantage of your higher limit, as the point here is to increase the amount you’re eligible to borrow but keep your debt level static. In other words, using $2,000 of a $5,000 credit limit is worse for your credit score than using $2,000 of a $7,000 limit, even though you’re talking about borrowing the same base amount. Increasing your credit limit without increasing your debt can help you up your credit score.

5. Hang on to that credit card you’ve had for years

Your credit history plays a big role in determining your overall score, and that’s why it’s important to always keep at least one credit card that you’ve had for years. Even if you don’t use it, you’re better off letting that account stay active. Once you close it, a portion of what could be a very long credit history might disappear. Furthermore, there’s a good chance that a card you’ve had for a long time will give you a higher credit limit than a new one, and canceling a card with a high limit can push your credit utilization ratio into unfavorable territory.

Just as you shouldn’t neglect your health in retirement, so, too, should you pay close attention to how you’re doing credit-wise. Just because you’re retired doesn’t mean you no longer need to borrow money. Quite the contrary — at a time when you’re living on a fixed income, it’s all the more crucial to keep your borrowing options wide open.