Improve Your Credit Score

You want to improve your credit score quickly but are unsure how to do so. In short, pay all your bills on time and use only one-third of your available credit each month. Doing these two things consistently will generate positive credit information that will raise your score.

You can also lessen the impact of any negative credit issues, but it will take time for these issues to move off your credit reports.

As background, your credit score utilizes historical data from your credit report to predict your future risk of default if you were to receive new credit.

Mortgage lenders, credit card companies, and banks use your credit score to determine whether and on what terms to offer new credit. Increasingly, home and auto insurers, landlords, cell phone companies, and utility companies use credit scores to determine the terms on which they will offer you their services.

And in some states prospective employers can pull your credit report (but not your score) after providing you notice that they are doing so. It behooves you to improve your credit score even if you don’t need new credit anytime soon.

Ways to Improve Your Credit Score

The most commonly used credit score is the FICO score. Its main competitor is the VantageScore. Both generally range from 300 to 850, although some newer versions of the scoring algorithms go above 850. Higher is better. Scores of about 750 and higher are considered “excellent.”

The FICO score weighs five factors to arrive at your credit score. The percentages signify the weight that is given to the factor.

  • 35% Payment History
  • 30% Amount Owed
  • 15% Length of Credit History
  • 10% Credit Mix
  • 10% New Credit

Understanding how these factors are assessed can help you improve your score.

Payment History – 35%

Prospective creditors want to know if you’ve paid past credit accounts or loans on time. This factor is the most important determinant of your score. A few late payments aren’t a killer, but neither does having no late payments mean a high score.

Late payments or charge offs are weighed less if they occurred several years ago compared to more recent ones. Closed or charged off accounts stay on your report for seven (7) years.

The accounts that are assessed include credit cards, retailer cards (e.g., Kohl’s, Banana Republic), car loans, personal loans, and mortgages. Public record information also is included such as bankruptcies, lawsuits, and any judgments.

Advice to Improve Payment History

1. Your score is drawn from the information on your credit reports. There are three credit bureaus (Equifax, Experian, and TransUnion) that each have a credit report on you. So the first step is to make sure your credit reports contains accurate information such as when the account was opened, payment history, and current status. Get your free credit reports each year from each credit bureau at

Each credit bureau has a process to fix any discrepancies on the credit report. Dispute any negative items that you don’t think are yours or are more than seven years old. Contact any vendor or creditor if you believe the information is incorrect.

2. Pay any outstanding past-due accounts that have not yet been charged off. Doing so will bring the accounts current. The accounts will begin to generate positive account data on your credit report again. The negative late payments will still appear on your credit report (for seven years), but they will soon be outweighed by positive data.

3. Pay the balances due on any collection or charged-off accounts. Paying what you owe will not immediately improve your score, but anyone considering granting you a loan or new credit will want to see that you paid what you owed, even if it was late.

The three actions above won’t necessarily improve your score quickly, but they are necessary to eliminate negative information on the report so that you can start to build positive credit information.

4. Don’t be late on any account. If you are late, call the vendor and see what you can do to make sure negative information is not reported to the three credit bureaus.

5. And if you have any extra money pay off an installment loan (such as a student loan) to show you have paid things back. Doing so will improve your score quickly.

Amount Owed – 30%

This factor will count against your score if you use more than one-third of your available credit. For example if you charge $2,000 each month on your credit card but have available credit of $3,000, you will be using more than one-third of your available credit. Even if you pay off your credit card balance each month, using $2,000 of a $3,000 credit line each month may show that you could be easily overextended.

Advice to Lessen Amount Owed

1. Pay down balances on your open credit card and retailer accounts to less than one-third of your credit limit. Even better, pay them off in full, and pay them in full each month thereafter. Low balances relative to your limit will improve your score.

2. Don’t charge more than one-third of your credit limit in each month. This shows that you aren’t using all the credit you have and are a good risk.

Before looking at the remaining three factors, note that payment history and amount owed comprise 65% of your score. Each of these two factors are more important than the following three factors combined.

Length of Credit – 15%

Longer credit (assuming its good) will generally increase your credit score. The score, for example, considers how long your credit accounts have been established, your oldest and newest ones, and the average age of your accounts.

Advice on Credit Length

Don’t cancel your oldest credit card. This action will shorten your credit history. You don’t necessarily need to use it, but don’t cancel it.

Credit Mix – 10%

A good credit score will be made up of multiple types of credit such as an installment loan, mortgage loans, and/or credit cards. This factor is less important but may be relied upon if you don’t have a lot of credit history.

Advice on Credit Mix

Don’t open credit cards you don’t need such as retailer cards.  But make sure you have at least one credit card.

New Credit – 10%

Your score gets dinged if you have too many “hard” inquiries from potential creditors/lenders on your credit report. A hard inquiry is one where you apply for a new account and the account is opened. Too many new accounts in a short period can be problematic especially if you don’t have a long credit history.

Rate shopping, such as comparing lender offers for a new mortgage, won’t hurt your score.

And if you need more credit, work with your existing lender to increase your credit limit rather than opening new accounts.

Advice on New Credit

Don’t open accounts just to get the initial discount. Use one credit card consistently and increase the credit limit if you need more credit.

In sum, you can improve your credit score by fixing any issues in the past, paying on time, keeping the balance on your credit cards below one-third of your available credit, and not opening new accounts needlessly.


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