Your credit score has massive power over your life. The three-digit number can open a lot of doors, including helping you rent an apartment and giving you access to a higher tier of rewards credit cards.
But if your credit score is sub-par — Experian classifies 300-579 as a "poor" score and 580-669 as "fair" — it can also hold you back. Having worse credit will get you higher interest rates on loans, which costs you extra money.
Fortunately, there are things you can start doing in January that will help you increase your credit score over the course of the year.
From checking your credit report for errors to signing up for a new credit card to help reduce your credit utilization rate, these are three ways you can improve your credit score in 2022.
The first step to increase your credit score is making sure that there aren't any mistakes dragging it down. Do this by requesting your credit report. Currently, individuals are allowed to check their reports from each of the three major credit bureaus — Equifax, Experian and TransUnion — for free every week through April 20, 2022.
"People would be really surprised at how often there are errors on their credit report," says Matt Schulz, credit card expert at LendingTree. "And the only way they're going to know about it, chances are, is by taking a look at their report."
Mistakes can range from open accounts that don't belong to you to missed payments that aren't yours. If you have a common name, check to make sure your data hasn't been mixed up with anyone else's.
"Having good credit is difficult enough," Schulz says. "The last thing in the world that you want is to be hamstrung by somebody else's mistake."
One of the biggest factors in your credit score — accounting for as much as 30% of it — is your credit utilization rate. That's the percentage of your line of credit that you are using. For example, if you have $10,000 in available credit and you put $5,000 worth of purchases on your credit card this month, that represents a credit utilization rate of 50%.
The lower you can get this figure, the more it will help your credit score. "The golden rule is to work toward 10% [or less]," says Nirit Rubenstein, CEO of credit repair company Dovly. "You'll get the most credit for being under that threshold."
To improve your credit utilization rate, start by trying to cut back on your spending and pay off your balance on time and in full. Additionally, you can lower your rate by signing up for an additional credit card. This will increase your overall credit limit and turn your spending into a lower percentage.
However, that isn't the best option for everyone. Assess whether or not you can responsibly open another card first. But, "if you are somebody who can manage that card wisely, it's going to improve your credit score," Schulz says.
At the same time, avoid closing any credit cards that you aren't using. This will lower your credit limit and increase your utilization rate. If a rarely used card has an annual fee, call the issuer and ask to be downgraded to a free card instead.
While one missed payment can quickly tank your score, it takes slightly longer than that to fix it. That's why it's important to pick up positive habits as early as you can and stay consistent with them throughout the year.
"Most credit situations are fixable within a six to 12 month period," says Shannon McLay, founder and CEO of The Financial Gym. "We've seen anywhere from 30- to 100-point credit changes happening over that time period."
If you're starting the year with a higher credit score and want to make it exceptional, it will likely be more difficult to see a large gain over same period of time that someone with a lower score would.
"It's actually easier to go from 620 to 720 than it is for 720 to get to 820," Rubenstein says.
No matter what, the best thing you can do is to start early.
"The more you can show positive and consistent payment history, the better," Rubenstein says. "Those things are going to help you build your credit."