Five Tips for Improving Your Credit Score


4/2/25

By Kristy Esquibel, Chief Credit Officer, Executive Vice President, First Southwest Bank

April is Financial Literacy Month, a perfect time to take a closer look at your credit score, understand how it affects your financial future, and implement strategies to improve it. A strong credit score is one of the most important financial tools you can have—it affects your ability to borrow money, the interest rates you receive on loans and credit cards, and even your eligibility for rental housing or utility services. Building and maintaining good credit takes time, discipline, and effort, but the benefits are well worth it. By following these five practical steps, you can strengthen your financial foundation and gain access to better lending opportunities.

Understanding the Importance of Credit

Have you ever been surprised by a loan denial or a high-interest rate? Many people don’t realize just how much their credit score impacts their ability to make major financial moves, such as purchasing a home, starting a business, or financing a vehicle. Your credit score is a reflection of how well you manage borrowed money, and lenders use it to determine the risk of lending to you. A higher score means lower interest rates, better borrowing options, and greater financial stability. The good news is that there are straightforward ways to improve your credit score over time. Here are five key strategies to help you do just that.

1. Pay Your Bills on Time

Your payment history is one of the most significant factors in determining your credit score. Missing payments or making late payments on credit cards, loans, or even utility bills can negatively impact your score. Consistently paying your bills on time shows lenders that you are reliable and responsible with credit.

If you have trouble remembering due dates, setting up automatic payments or calendar reminders can help ensure that you never miss a deadline. Even if you can only make the minimum payment, paying on time is essential for maintaining and improving your credit standing.

2. Don’t max out your available limits on credit cards.

Credit scoring models analyze how much credit you have outstanding compared to your credit limit which is called your credit utilization rate. Having a credit balance close to the maximum amount of credit available could possibly negatively affect your credit score. By demonstrating discipline and keeping credit card balances low relative to your maximum credit limit, you can improve your credit score.

If possible, paying down your balances more aggressively can have a positive impact on your score. Spreading out your spending across multiple accounts rather than maxing out a single card can also help keep your utilization ratio low.

3. Pay Your Credit Card Balances in Full Each Month

Carrying a balance from month to month can lead to costly interest charges, and it may also negatively affect your credit score. When you pay off your credit card balance in full each billing cycle, you avoid paying interest while also demonstrating responsible credit management.

Using a credit card for everyday purchases and paying it off in full each month is one of the best ways to build a strong credit history. Not only does this show lenders that you are a low-risk borrower, but it also helps you avoid unnecessary debt.

4. Only Apply for Credit When You Need It

Each time you apply for a new credit account, the lender performs a "hard inquiry" on your credit report. While one or two inquiries won’t significantly impact your score, multiple inquiries in a short period can suggest financial distress and lower your score.

Be strategic about opening new accounts—only apply for credit when you truly need it. If you’re shopping around for a major loan, such as a mortgage or auto loan, multiple inquiries within a short time frame (typically 14-45 days, depending on the credit scoring model) are often counted as a single inquiry to minimize impact.

5. Review Your Credit Report for Errors

Errors on your credit report can drag down your score without you even realizing it. Common mistakes include incorrect account balances, duplicate accounts, and even accounts that don’t belong to you. Reviewing your credit report regularly can help you catch these errors and dispute them with the credit bureaus.

You are entitled to a free credit report from each of the three major credit bureaus—Experian, Equifax, and TransUnion—once per year at www.annualcreditreport.com. If you find an error, report it to the credit bureau immediately and provide any necessary documentation to support your claim.

Other Ways to Strengthen Your Credit

While the five tips above are essential to improving your credit score, there are other steps you can take to enhance your financial standing:

  • Consider a Credit-Builder Loan: If you have little or no credit history or a negative credit history, a credit-builder loan can help you establish a positive payment history and improve your score over time. Learn more about our Credit Builder Loan Program.

  • Establish a Mix of Credit Types: Having a combination of credit types, such as credit cards, installment loans, and retail accounts, can help boost your score over time.

  • Keep Old Accounts Open: The length of your credit history plays a role in your score. Even if you no longer use an old credit card, keeping it open (as long as it has no annual fee) can help maintain a longer credit history.

The Long-Term Benefits of Good Credit

Improving your credit score doesn’t happen overnight, but with patience and discipline, you can achieve better financial health. A higher credit score gives you access to better interest rates, more favorable loan terms, and a greater ability to reach your financial goals.

Taking control of your credit is one of the most empowering financial decisions you can make. By making on-time payments, managing credit wisely, and regularly reviewing your credit report, you can strengthen your financial future and open doors to new opportunities.

Stay Financially Informed

Financial literacy is an ongoing journey. Whether you're working toward buying your first home, growing a business, or simply aiming for financial security, understanding how credit works is key. This Financial Literacy Month, take the time to review your credit habits and set goals for improvement. The steps you take today can have a lasting impact on your financial well-being for years to come.