How To Improve Your Credit Score

Did you know there are 3 different credit card scores, each looking at similar credit score factors but sometimes rating you differently? What even goes into your credit score?

Credit Score Factors Demystified

On-time Payment and Payment History – 35% of your score, large impact

Pay your bills on time! You may be surprised that it’s not just your credit cards that fit into your credit history. Your gym membership, student loans, and utilities (like the internet) are all bills that can factor into your creditworthiness! Going from 100% on-time payment to even ONE missed payment can drop your score as much as 100 points. A collection or charge off (not paying for a long time) is even worse. This is a HUGE impact, and these negative marks stay on your credit for 7 years.

I usually have an automatic minimum payment set up for everything and then go back and manually check that every bill is paid at the beginning of each month. My peace of mind comes from verifying payments manually, while others prefer to automate their payments.

Decide whether automating your bills or doing them manually is best for you.

Utilization – 30%, high impact

Even though your credit card gives you a $2000 limit, you should NOT use 100% of that limit! Stay below 30% maximum, but the lower, the better!

Of course, the best advice is to pay it off in full every month.

Some charts show that people with a utilization of 0% have much lower credit scores than those with 1-10%. This does NOT mean that it is better to keep a few dollars on your credit card every month to show you are ‘using’ the credit. More likely, a portion of those who have 0% utilization has NEVER had any credit extended to them, meaning they are utilizing 0%, and have a low score since they do not have any history of creditworthiness. Pay your bill off in full every month! If you can’t, don’t buy it! 

Length of Credit History – 15%, medium impact

This is one is a tough one to change. The earlier you start building up some credit, the better. Parents who have good credit and added their children as authorized users on their credit cards got their children a head start with 700+ or even better credit scores. However, this comes with a risk – if there’s a missed payment, that will lower your score as well!

Getting a zero fee card during college is a good starting point for those with NO credit history. If you have some credit, like being an authorized user, a no annual fee, a decent rewards card like Chase Freedom is a good way to build up credit. Research credit cards that fit your lifestyle, and remember, the biggest credit score factors are utilization – pay your credit card off every month!

Credit Mix – 10%, low impact

The credit mix is the evaluation of different types of accounts you have. There are two types of debt: installment (student loans, gym membership, mortgage – there is a set sum and you pay down to zero) and revolving (credit cards – you have a set limit, and you can borrow money up to your limit and pay it down without having to request new credit for every purchase).

The better mix of responsible credit use you have, the better. Student loans, a paid-off installment debt like a gym membership, and a couple of responsibly used credit cards with low utilization are enough to get an ‘A’ on the credit mix category.

While not terribly impactful, people with few accounts will have a lower due to these credit score factors.

Hard pulls/Hard inquiry – 10%, low impact

When someone checks your credit, it could hurt your score. This seems unfair until you realize if someone is wandering around trying to open a lot of credit cards, that’s a bad sign. If you open a credit card, while you may take a temporary hit, your utilization % (if you don’t pay off your card every month) goes down, improving another, more important, factor to your credit.

You could also get hard pulls for requesting a credit line increase, applying for a loan, an apartment rental application, and even getting Comcast internet set up.

Having an understanding of credit score factors is crucial to your financial health. Have you never checked your credit score?