Credit Score 101: How to Improve Your Rating

Published by Simon Elstad on

improve credit score

Every so often, someone checks your credit score. It might be your bank when you apply for a mortgage. Your credit card company when you apply for a card. Your employer when they conduct a background check.

Just three digits, yet they determine the loan amount you get, the interest you pay on that loan and even, who you can get it from.


What is a credit score?

credit score

Your credit score is simply a three-digit-number. It’s also called a FICO score. It’s determined from a fair analysis of your credit reports through a formula developed by the Fair Isaac Corporation. Fair Isaac blends through your credit reports and payment history of all your accounts and spits out a digit between 300 and 850.

FICO scores are calculated for the three major credit reporting agencies; Experian, Equifax, and Transunion. Chances are your score will vary with each agency. In general, though, the higher your credit score, the better the terms of your loans and the interest charged.


Factors that affect your credit score

Payment History (35%)

Whether you pay your debts and fines on time carries the most substantial weight rating at 35%. The history includes any obligations a creditor submits to the credit bureaus, including library fines and parking tickets. Payments on time help boost your credit score since payment history carries the most weight with Fair Isaac.

Amounts Owed (30%)

Higher amounts owed don’t necessarily mean that you are a high-risk borrower. It’s the percentage of the owed amounts compared to the total loan that carries weight. Maxing out your cards, for example, will lower your final score.

Length of Credit History (15%)

In general, the longer the credit history, the higher your credit score should be. Under this, you factor the age of your oldest and newest accounts as well as the frequency of use in those accounts—the fewer and aged paid off accounts you have, the better your credit score is.

New Credit (10%)

This includes all new credit accounts you have opened in the near past and any new loans you have outstanding. Short periods of credit and short credit histories usually mean a higher risk to credit bureaus, though not always. It’s the reason why a new loan carries a lower weight in determining your score.

New credit weight includes recent checks on your credit score from lenders you have applied for loans with. There are higher chances of your credit score dropping if it seems you are opening many accounts at once. It’s termed as “churning and burning.” It’s a sign that you are experiencing financial difficulties. It lowers your credit score as well.

Space your credit account applications to at least six weeks between each inquiry. Not all credit checks affect your score. Checks initiated by the lender shouldn’t affect you at all.

Types of Credit in Use (10%)

Credit agencies weigh the complete mix of your credit accounts. These include all your credit cards, any outstanding mortgages with banks or other financial institutions, and retail accounts.

Installment debts where you pay a specified amount each month show that you can handle large loans.

How you handle revolving debt (credit card and retail debt), carries more weight since it’s predictive of your future payment patterns. Pay your balances each month or limit your card usage.


How to boost your credit score

boost credit score

A score of 700 and above will give you some of the best loan rates. To improve and maintain your score at that high level, follow these steps:-

  • Pay all your outstanding bills on time. Honor even the small card balances, library fees, and parking tickets, which may attract fines in the future and lower your score.
  • Maintain a low balance (In general, a third of your limit). You can also request your creditors to lower your credit limits, thus reducing your balances.
  • Pay off your balances each month in full.
  • Have a long term credit card and use it lightly
  • Dispute any errors you notice on your reports. The errors could be omissions on paid debts, late payments paid in time, cleared debts that appear as outstanding. Old debts (over seven years) should no longer appear on your account. Check them too.

Consistency in credit usage. Underpaying balances or overcharging your credit card will lower your score.


How to check your credit score

You can get at least one free annual credit report from the three major credit bureaus (Equifax, Experian, and TransUnion). You can also get your score from other sources. The external score is not the exact FICO score as used by loan agencies in evaluating your credit applications.

Scrutinize and report any errors you notice on your credit report to any of the three credit reporting agencies. A law obligation for credit agencies is in place to consider your complaints. It’s usually done within thirty days of your request. You are offered a free credit report with the corrected information.



Credit scores are an inevitable reality of our financial lives. How many times you check yours is up to you.

If you plan on applying for a loan, check your score often in the months preceding your application. You will notice any errors from your reports and understand how creditworthy you are. It also gives you a chance to improve your credit score before you make the loan application.

So, when was the last time you checked your credit score?

Simon Elstad

Simon Elstad is a freelance writer/editor, digital strategist & all-round online business operations ninja. For work and collaborations, or to just give feedback (or buy him coffee), reach him at: simon [at] simonelstad.com or Twitter @Simonelstad