How To Improve Your Credit Score

If you've received your credit score and discovered that it's on the low side, there are a lot of ways you can use to improve it.

How To Improve Your Credit Score

Obtaining your credit score is simple enough, as it boils down to one number. But that little number determines if you can get a car, a house, a boat, a planet (probably not for a while), so it’s important to understand how that number works and where it comes from.

The three major credit bureaus, Equifax, Experian, and TransUnion have collected specific, but sometimes overlapping, credit information about you from banks and credit card companies, and then sell it to lenders when you apply for a credit card, a loan, etc in the form of a credit score.

They each calculate their own scores based on similar or the same information, but there are several versions of the software that they use, and your information goes through all of them, and each version gives them a different score.

Lenders will consider any number of these scores, however, if you’re borrowing money for a specific purpose, i.e. a car, a boat etc. the lenders will ask for scores specific to those purposes. FICO, for instance, has specific criteria for deciding a consumer’s eligibility for an auto loan.

The information the credit bureaus use to determine your credit score pertains to five aspects of your credit activity:

  • Payment history - payment records, including late payments and delinquencies
  • Credit utilization - how much credit you still have available
  • Age of credit history - how long you’ve had a credit history
  • Type of credit - the kinds of accounts that you have, like car loans or a credit card.
  • Credit inquiries - the number of times you’ve applied for things like loans and credit cards.
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Each of these items is weighted differently according to the software that the bureaus are using, usually either FICO or VantageScore or both. Because each element is weighted differently, it’s important to stay on top of all of them, and if you have a low credit score it’s time to start paying attention. Things like income, savings, and job security aren’t taken into account when determining your credit score, so at least you don’t have to worry about those things.

There are a few things you can do to improve your credit score:

  • Pay your bills - not only this but do it on time. Late payments and collection agencies on your tail are detrimental to your credit score.
  • 30% is the magic number - keep your balances to no higher than 30% of your available credit. For example, if you have a $300 credit limit, keep the balance of that card to $90 or less.
  • Stay active - Since your credit score is somewhat dependent on how long you have accounts, keep them open and active. For this reason, it’s also important to keep open accounts to a minimum, as new accounts will lower your average account age.
  • Credit reports - you can get a free credit report from each bureau from AnnualCreditReport once a year. To make these last, instead of getting all three at once, get one at the end of each fiscal quarter. That way you can have a more consistent evaluation of your credit history. This is important because it allows you to catch fraudulent behavior before it’s too late.

Depending on how low your score is, it may take a long time to build it back up, but consistency is king, so keep to this list and you can’t go wrong.

Brian GrabianowskiBrian Grabianowski

Avid Formula 1 fan and motorcyclist, I enjoy chocolate chip cookie dough ice cream and long rides to the beach.