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5 Steps to Boosting Your Credit Score in 2021

By Maurie Backman - Dec 8, 2020 at 9:00AM

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Want better credit by the end of 2021? Here's how to get it.

Paper printout showing an excellent credit score of 790, alongside a calculator and reading glasses.

Image source: Getty Images.

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Having a great credit score is important. Without one, you might struggle to get a mortgage, rent a home, or even get approved for a credit card. If you're not happy with the way your score looks, the good news is that you can improve it. And the start of a new year is a great opportunity to do so. Here's your step-by-step guide to closing out 2021 with a much higher number.

Step 1: Set a goal

It's one thing to say you want to improve your credit, but it's another to set a specific goal. Figure out what your near-term financial objectives are and what score you'll need to achieve them. For example, if you're hoping to get a mortgage at the end of 2021, you'll need a minimum score of 620 to qualify, but you'll need a score in the mid-700s or higher to snag the best available rates. 

Step 2: Pay all of your bills on time

Your payment history is the single most important factor that goes into calculating your credit score. As such, the simple act of paying every bill on time in 2021 could raise your score significantly. To help achieve this, aim to automate as many bills as you can. That way, you won't have to worry about what payments are due when. Also, set up a budget to follow so you can manage all your bills and not fall behind.

Step 3: Cut back on spending to pay off existing debt

The less credit card debt you have, the more your score stands to improve. That's because credit utilization, which shows the amount of revolving credit you're using at once, is another big factor in calculating your credit score. A credit card balance that exceeds 30% of your total credit line can hurt your score, so use your budget to figure out areas where you can spend less. Then, use those extra funds to chip away at your existing debt. If your total credit limit equals $10,000 and you currently owe $5,000 on your various credit cards, your credit utilization is 50%. Cutting that balance down to $3,000 will help your score rise (not to mention save you money on interest). 

Step 4: Keep checking your credit reports

Your credit accounts, debts, and payment history are all summarized on a nifty document known as your credit report. You actually have three credit reports, because each of the big reporting bureaus -- Experian, Equifax, and TransUnion -- issues one on your behalf. The information contained in your credit report will impact your credit score, so it's important to check those reports for errors. If you spot a mistake, like a debt listed as delinquent that you paid off years ago, getting it corrected could help your score improve quickly. Normally, you're entitled to a free credit report from each bureau just once a year, but through April 2021, you can access a free copy weekly

Step 5: Limit your loan or credit card applications

Each time you apply for a new loan or credit card, it counts as a hard inquiry on your credit record. Too many hard inquiries can bring your score down. A single hard inquiry, however, won't do as much damage, and in some cases, one new loan or credit account can actually help boost your credit. How so? Let's use our example from above, where you owe $5,000 in credit card debt against a credit limit of $10,000. That puts your credit usage above that desired 30% threshold. However, if you were to open a new credit card account with a $5,000 limit, that boosts your total limit to $15,000. Suddenly, your credit utilization ratio is a much healthier 33%. 

The better your credit score, the easier it'll be for you to borrow money affordably when you need to. If you're starting off 2021 with a score that's lower than you'd like it to be, use the next 12 months to build it up. That way, you'll be in a much stronger position to kick off 2022.

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