What is a Credit Score?
A credit score is a number that creditors use to determine your credit behavior, including how likely you are to make payments on a loan.
Having a high credit score can make it easier to get a loan, rent an apartment, or lower your insurance rate.
How Your Credit Score is Calculated
The three major credit reporting agencies create credit reports which include a history of your credit, loans, and other financial information. These credit reports are used to calculate your credit score. The information from your credit report that affects your score includes:
- Payment history
- Outstanding balances
- Length of credit history
- Applications for new credit accounts
- Types of credit accounts
Ways to Improve Your Credit Score
Your credit history directly affects your credit score. If you want to improve your score, there are some actions you can take:
- Pay your loans on time
- Avoid using too much of your credit limit
- Keep a long credit history
- Check for and fix errors on your credit report
Learn more about improving your credit score and how to fix credit report errors.
1. Make On-Time Payments
Credit Impact: Payment history accounts for 35% of your FICOθ Score and is the most important factor. On-time, late, and missed payments all affect your score.
Actions: Set up autopay and reminders. Use tools like Experian Boost® to get credit for rent, utilities, and subscriptions.
Timing: You may see results within a few months. Late payments stay on your report for seven years but have diminishing impact over time.
2. Pay Down Revolving Account Balances
Credit Impact: Utilization accounts for 30% of your score. Keeping your credit usage low can positively impact your score.
Actions: Use methods like the snowball or avalanche, or tools like debt consolidation loans and balance transfers.
Timing: Creditors report monthly. Improvements may show within a few billing cycles.
3. Don't Close Your Oldest Account
Credit Impact: Length of credit history makes up 15% of your score. Closing older accounts reduces your average account age and available credit.
Actions: Keep older cards open and active. Downgrade if needed to avoid fees.
Timing: Losing long-standing accounts can affect your score quickly. Closed accounts stay on your report for 10 years.
4. Diversify the Types of Credit You Have
Credit Impact: Credit mix accounts for 10% of your score. A mix of installment and revolving accounts helps your credit profile.
Actions: Naturally grow your credit mix over time. Start with a credit-builder loan and a credit card.
Timing: It may take years to establish a healthy credit mix.
5. Limit New Credit Applications
Credit Impact: Hard inquiries and account age affect 10% of your score. Too many applications can temporarily lower your score.
Actions: Only apply for credit when necessary. Use prequalification tools when available. Rate shop for loans within a short timeframe.
Timing: Inquiries stay on your report for two years but only affect scores for up to one year.