How To Raise Your Credit Score

A credit score is a three-digit number that plays a big role in whether you qualify for apartment leases, credit cards, car loans and mortgages.

In general, the higher your score, the more likely you are to receive better deals and competitive rates.

Learn how to drive your score up and keep it as high as possible.

Understanding Credit Scores

Your credit score helps lenders determine your "creditworthiness" and the interest rate you'll pay. Lenders use scores to evaluate the likelihood that you'll repay loans in a timely manner.

Landlords look at credit history to gauge your ability to pay your bills on time. Credit scores are also used to determine how much of a deposit you need to pay for things like cell phone plans and utilities.

Credit scores play an integral part in your future financial health. 

Your Credit Score May Vary Across Credit Bureaus

FICO is a credit scoring model invented by Fair Isaac Corp. more than 25 years ago. The three main credit bureaus (Experian, TransUnion and Equifax) use FICO, but it is unlikely that your FICO Score will be the same at each one.

This can be confusing, but each company maintains its own credit report information.

For example, if you apply for a credit card, the lender will likely pull your credit report but may not pull it from all three credit bureaus. New negative information (like missed payments, for example) can also be added at different times, which can cause your scores to vary slightly across bureaus.

Keep in mind, there are different scoring models used by popular online sites and apps that may show a different score. That said, FICO is a model used by many lenders and the one you should consider paying the most attention to.

How Credit Scores Are Calculated   

FICO Scores range between 300 and 850. The number is intended to suggest the likelihood someone can repay a lender. Anything above 700 is considered good or very good.

Five main factors make up your credit score:

1. 35% — Payment history

2. 30% — Debt relative to credit

3. 15% — Age of open credit accounts

4. 10% — Recent credit applications

5. 10% — Having more than one type of credit

Understanding credit scores can be challenging, but you can take steps to improve yours. Just know it won't happen overnight.

Why a Good Credit Score Matters

The higher your credit score, the less interest you'll pay when borrowing money, whether via credit cards, mortgages or loans.

Employers often pull credit or do financial checks on job candidates. It's important to build, defend and take advantage of great credit, regardless of your age or where you are financially.

4 Ways To Improve Your Credit Score

1. Make Payments on Time

Paying your credit accounts on time is the most important thing you can do to maintain and improve your credit score. Payment history makes up 35% of your FICO score. Your payment history is the "strongest predictor of the likelihood you'll pay all debts as agreed to," according to FICO.

If you're having trouble making timely payments, set up automatic payments for your bills and debts to ensure you don't miss a payment.

On-time payments save you money, too. The average late fee was $32 in 2022, according to the Consumer Financial Protection Bureau. A CFPB rule finalized in early 2024 will require the largest card issuers to cap late fees at $8.

2. Keep Balances Low

Maxing out your credit card or line of credit and carrying multiple loans could hurt your credit rating — even if you've never missed a payment. The amount of credit you're using in relation to the credit available is 30% of your credit score. A higher ratio could indicate you're overextended.

If you carry a balance, we recommend keeping it under one third of your credit limit. So, if you have a $10,000 balance, keep your amount owed under $3,000.

If you have multiple credit lines, keep the combined balance under 30% of the credit available to you.

4. Check Credit Scores and Reports Regularly

Stay on top of your credit reports to make sure they're accurate. That way, if errors crop up or someone opens a line of credit in your name, you can catch and report it right away.

If you haven't seen your credit reports recently, we suggest you pull all three now at AnnualCreditReport.com. If you've seen your reports within the last year, consider scheduling time at regular intervals to pull and review your reports, so you can track any changes.

3 Common Credit Score Mistakes To Avoid

1. Avoid Credit Repair Scams

According to the Federal Trade Commission, the credit repair industry is a popular target for scammers. Companies often promise to remove negative information from your credit report, but exaggerated promises can cost you a lot of money.

Fortunately, you can work to improve your credit score on your own. Focus on making on-time payments and keeping your credit utilization low.

2. Don't Close Your Oldest Account

Closing a credit card can hurt your credit score, especially if it's your oldest account. Remember, the age of credit history contributes up to 15% to your FICO score.

Instead, consider using your oldest credit card every few months or putting a small recurring bill on the card to keep it active.

The same goes for other unused credit cards. It's best to keep cards open so that you benefit from a longer average credit history and more available credit.

3. Limit New Accounts and Inquiries

It can be tempting to sign up for new cards to gain rewards and discounts, but doing so can ding your credit score, particularly if you don't have much credit history. A hard inquiry occurs when you apply for credit. Hard inquiries generally take a few points off your FICO score and can reduce your score for up to 12 months.

Apply for new credit only when needed to avoid too many hard inquiries. But remember that when you look at your own credit score, it counts as soft inquiry. A soft inquiry does not affect your credit score.

Credit Score Frequently Asked Questions

How Long Does It Take To Improve a Credit Score?

Depending on your credit history, improving your credit score could take several weeks, months or even years.

An on-time payment history can improve your credit overall. But while most bureaus update credit reports at least once a month, some items take a long time to recover from. For example, serious items like bankruptcies and collections can take up to seven years to fall off your history.

New credit inquiries only affect your score for up to 12 months.

Does Paying Off Collections Boost a Credit Score?

A collection account can stay on your credit report for up to seven years. Paying off a collection is unlikely to boost a credit score immediately. But the effect of a debt going to collection will decrease over time, particularly if you pay other accounts on time.

Medical collection accounts with balances under $500 were removed from all three credit bureau reports in 2023.

Does Paying Off a Loan Help or Hurt Credit?

Your credit score might drop by a few points after you pay off an installment loan such as an auto loan or personal loan. However, it will typically be minor and temporary.

Sometimes, having a small amount on an open loan may be more beneficial than paying it off. But in the long run, paying off a loan will reduce your debt-to-income ratio and can potentially improve your credit score.

Takeaway: Be Consistent To Raise Your Credit Score Over Time

Improving your credit score can unlock lower available interest rates, easier loan approvals and more.

Take small, consistent steps such as paying your bills on time and keeping your credit utilization below 30% to improve your score.

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