What to look for in your credit report to lower borrowing costs

Your credit score can make or break your ability to open a credit card or buy a new car or home at attractive interest rates.

To boost your score, you need to know where you need to improve.

Keeping tabs on your credit report — which outlines your debts, bill payment history and other financial information — can help you do that.

The three major credit reporting agencies — Equifax, Experian and TransUnion — recently extended the availability of free weekly credit reports to consumers through the end of 2023. By law, consumers are entitled to one every 12 months from each agency, but that during the pandemic, the companies expanded access to weekly free checks.

The reports are available at the Annual Credit Report website.

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“We always recommend once a year, at least, to always check your credit report at annualcredit report.com,” said Trent Graham, program performance and quality assurance specialist at GreenPath Financial Wellness, a nonprofit providing free debt counseling services.

While the free credit report you’ll get won’t show your credit score, it can offer clues in terms of how to boost that number. You can access your credit score by paying for it from one of the three credit reporting agencies, or access it for free from your credit card company if it offers the perk.

In terms of credit scores, anything in the 700 range or above is generally “pretty good,” Graham said. The closer your score gets to the high 700s or 800s — approaching popular scoring models’ perfect score of 850 — the better off you’ll be, he said.

The national average credit score recently reached an all-time high of 716, according to FICO.

Your credit score may vary slightly by provider.

A recent NerdWallet survey found more than a quarter of respondents — 27% — say their credit scores have increased since the onset of the Covid-19 pandemic, while 14% have seen their scores decline.

If you’re looking to boost your credit score, keeping two priorities in mind — paying your bills on time and keeping your debt balances low — will help.

“That’s 65% of their credit score right there,” Graham said. “The more they focus on those two key categories, the better their score will generally improve.”

If you pay a bill more than 30 days late, that misstep stays on your credit report for seven years, according to Graham.

But the good news is the longer you make on-time payments without falling behind, the more your score will start to improve, he said.

“It’s not a short-term fix, like one to two months of making on-time payments,” Graham said. “It can be fixed; it just takes some time.”

Your report will also show your credit utilization, or how much debt you have compared to your credit limits. Ideally, you want to have under 30% utilization.

Debt was a big factor for those who have seen their credit scores move since the start of the pandemic, according to NerdWallet’s survey.

Of those who saw their credit score go up, 69% said it was due to paying down debts. Meanwhile, almost half — 47% — who saw their scores decrease said it was due to taking on more debt.

Other factors also included in your credit score, according to Graham, include length of credit history, which represents about 15%; different types of credit and use, 10%; and applications for new credit, 10%.

While those factors are not weighted as heavily, you may want to think carefully before closing an older account, thereby reducing your available credit.

NerdWallet’s survey found 46% of respondents incorrectly believe closing a credit card will help your credit score.

Applying too much for new credit can also ding your score.

Your credit report will help you identify the accounts that have been open the longest and how many inquiries have been on your report.

Your credit report may have incorrect information, and that can hurt your credit score.

If you spot a mistake, you can fill out a dispute form with each of the three credit bureaus. It generally takes 30 days to have those claims addressed, Graham said.