There are a lot of reasons to want to increase your credit score. A higher score gets you access to lower interest rates, which makes borrowing money cheaper. Bumping up that score can also open doors to higher limits on your existing cards and make you more likely to be approved for important purchases, including a car or home.
So, how can you improve your score? What things will harm it? We take a look at the actions that can affect your score, as well as dispel myths around those that won’t.
Top 5 credit score factors
When talking about actions that can directly affect your score, it’s important to clarify that some actions will have a bigger impact than others. For that reason, we’ll list the factors that affect credit scores with those having the biggest impact at the top of the list:
1. Payment history
It should come as no surprise that not paying your bills, especially on existing credit cards, can quickly bring down your score. FICO and other credit scoring models consider this factor of the highest importance. Your payment history accounts for 35 percent of your total credit score.
What counts in your payment history? Typically, your credit cards and loans are included as well as these accounts:
● Home mortgage
● Car loans
● Student loans
● Cell phone bills
● Medical bills
● Store credit accounts
● Bank lines of credit
One late payment may not have a huge impact on your score, but several will. A pattern of late payment behavior is a telling sign to creditors that you are a higher credit risk, and your score will change to reflect that.
It's also much harder to raise a score once it's lowered due to late payments, so do your best to keep those payments coming on time. If you can't make a monthly payment, get on the phone with your creditor before the due date, and see what can be done to give you a little more time to pay.
2. Credit utilization
This term sounds complicated, but it’s simply a number that shows how much of your available credit is currently being used. If you have a $10,000 credit card, for example, and you’ve charged $4,000 to it, your utilization is 40 percent for that card. Your credit score looks at all of your credit cards and loans, however, and totals up what you owe, then compares it to your available credit limits. This ratio accounts for 30 percent of your credit score, so it's very important!
Improving your credit utilization ratio is one of the quickest ways to boost a credit score. FICO and other scores like to see you below 30 percent utilization, so if you’re hovering just slightly over that, pay down a card or two and watch your score improve. The best credit scores have utilization of under 10 percent.
