How to improve your credit score

What are credit scores?

Credit reports are used by banks, credit card issuers and automobile dealerships to help them determine whether or not you are a good risk and if you are likely to repay any loan taken out.

Also, many potential employers and landlords check your credit score to find out about your past credit history.

There are some very simple steps you can take to raise your credit rating, as well as many things you can do to avoid having your credit score decline in the future.

Note: This article applies to the United States. While some of the information here is relevant for other jurisdictions, check with your relevant local sources to verify first.

Understanding your credit score

Learn how your credit score is calculated.
There are three national credit bureaus TransUnion, Equifax and Experian that calculate your credit score, and your score can differ depending on the agency, as they may have differing information about your credit history.

There are five major components to your credit score.

Each of them is weighted differently.

Payment history (35%)

The most important component of your credit score is your payment history.

Do you pay your bills on time?

Do you have a history of late payments?

If so, how late?

Have you ever been turned over to collections?

You can expect that late payments will deduct points from your score.

Amounts owed (30%)

What’s your overall debt load?

If you’ve taken on too much debt, then your score could suffer.

Length of credit history (15%)

How long is your record when it comes to managing credit?

If you’re brand new to the scene, then lenders will view you as a risky borrower when compared against someone who’s been paying off debt for decades.

New Credit (10%)

If you’ve just taken out a bunch of new loans and/or opened credit card accounts recently, your score is going to take a hit.

Types of credit (10%)

A healthy mix of debt (a mortgage, a credit card, and a car loan) is viewed a little more favorably than debt consisting entirely of credit cards.

However, you don’t want to open a new credit account just to have “balance.”

Instead, focus on the other components of your score.

Know how your credit score influences loans.
When you are looking to take out a loan, perhaps for a mortgage or to buy a car, lenders are going to look at your credit score to help them determine if you are a good risk— meaning, you will pay back the loan.
They will also use your credit score to help them determine the interest rate on a loan.
If you have a high credit score, you will likely qualify for lower interest rates.
A low score may mean a higher interest rate, or even being denied a loan.


Different lenders may use industry-specific scores.

For instance, a credit card company may look at your FICO Bankcard Score, or an auto lender may order your FICO Auto Score, to give them a more specific look at your relevant credit information.

When applying for a personal loan, student loan, or mortgage, your credit score from all three bureaus may be examined.