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A credit score reflects credit payment patterns over time, with more emphasis on recent information.

  • Pay your bills on time. Delinquent payments and collections can have a major negative impact on a credit score.
  • Keep balances low on credit cards and other “revolving credit.” High outstanding debt can affect a credit score.
  • Apply for and open new credit accounts only as needed. Don’t open accounts just to have a better credit mix. It probably won’t improve your credit score.
  • Pay off debt rather than moving it around. Also, don’t close unused cards as a short-term strategy to improve your credit score. Owing the same amount but having fewer open accounts may lower your credit score.

The Most Important Credit Score Factors

Certain credit score factors are more important than others. Payment history and credit utilization ratios are among the most important in many critical credit scoring models, and together they can represent up to 70% of a credit score, which means they’re hugely influential.

  1. Payment History

    When lenders review your credit report and request a credit score for you, they’re very interested in how reliably you pay your bills. That’s because past payment performance is usually considered a good predictor of future performance.

    You can positively influence this credit scoring factor by paying all your bills on time as agreed every month. Paying late or settling an account for less than what you originally agreed to pay can negatively affect credit scores.

    You’ll want to pay all bills on time — not just credit card bills or any loans you may have, such as auto loans or student loans, but also your rent, utilities, phone bill, etc. It’s also a good idea to use resources and tools available to you, such as automatic payments or calendar reminders, to help ensure you pay on time every month.

    If you’re behind on any payments, bring them current as soon as possible. Although late or missed payments appear as negative information on your credit report for seven years, their impact on your credit score will decline over time. Older late payments will have less effect than more recent ones.

  2. Credit Utilization Ratio

    The credit utilization ratio is another important number in credit score calculations. Basically, your credit utilization rate is calculated by dividing your total credit card balances by your total available credit (credit limit). Credit scoring models consider both your overall credit utilization rate across all cards, and your rates for each individual card.

    Lenders like to see low ratios of 30% or less, and people with the best credit scores often have very low credit utilization ratios. A low credit utilization ratio tells lenders you haven’t maxed out your credit cards, and likely know how to manage credit well. You can positively influence your credit utilization ratio by:

    • Paying off debt and keeping credit card balances low
    • Becoming an authorized user on another person’s account (as long as they use credit responsibly)

Opening a new credit card can increase your overall credit limit, but the act of applying for credit creates a hard inquiry on your credit report. Too many hard inquiries can negatively impact your credit score, though this effect will fade over time. Hard inquiries remain on your credit report for two years.

How Changes Affect Scores

One common question involves understanding how very specific actions will affect a credit score. For example, will closing two of your revolving accounts improve your credit score? While this question may appear to be easy to answer, there are many factors to consider.

  • Credit scores are based entirely on the information found on an individual’s credit report.
  • Any change to the credit report could affect the individual’s credit score.

Simply closing two accounts not only lowers the number of open revolving accounts, but it also decreases the total amount of available credit. That results in a higher utilization rate, also called the balance-to-limit ratio (which generally lowers scores).

One change can affect many items on the credit report. It is impossible to provide a completely accurate assessment of how one specific action will affect a person’s credit score. This is why the credit risk factors provided with your score are important. They identify what elements from your credit history are having the greatest impact so that you can take appropriate action.

Take These Steps to Improve Your Credit Score

Paying your bills on time is the most important contributor to a good credit score. Even if the debt you owe is a small amount, it is crucial that you make payments on time. In addition, you should:

  • Minimize outstanding debt
  • Avoid overextending yourself
  • Refrain from applying for credit needlessly

Applications for credit show up as inquiries on your credit report, indicating to lenders that you may be taking on new debt. It may be to your advantage to use the credit you already have to prove your ongoing ability to manage credit responsibly.

More Tips to Improve Your Credit Score

In addition to keeping a positive payment history and a low credit utilization ratio, you can take other steps to improve your credit scores, including:

  • If you have the self-discipline to avoid using them, you can leave unused credit accounts open. These accounts add to the total credit you have available, and not using them keeps the amount of credit you’re using low, yielding a lower credit utilization ratio.
  • Apply for and open new credit accounts only when necessary. Unnecessary credit can harm your credit score in multiple ways, from creating too many hard inquiries on your credit report to tempting you to overspend and accumulate debt.
  • Check your credit report for any inaccuracies and clear them up right away.
  • Guard against identity theft by regularly checking your credit report and closely monitoring all your credit accounts. These are where the first signs of fraud are most likely to show up.

How Long Does It Take to Rebuild a Credit Score?

If you have negative information on your credit report, such as late payments, a public record item (e.g., bankruptcy) or too many inquiries, you may want to pay your bills and wait. Time is your ally in improving your credit scores. There is no quick fix for bad credit scores.

The length of time to rebuild your credit history after a negative change depends on the reasons behind the change. Most negative changes in credit scores are due to the addition of a negative element to your credit report, such as a delinquency or collection account. These new elements will continue to affect your credit scores until they reach a certain age.

  • Delinquencies remain on your credit report for seven years.
  • Most public record items remain on your credit report for seven years, although some bankruptcies may remain for 10 years and unpaid tax liens remain for 10 years.
  • Inquiries remain on your report for two years.

Building your credit and improving your credit scores takes time; there are no shortcuts. Start improving your credit by checking your FICO Score from Experian data and reviewing the individual factors that are affecting your credit scores. Then, learn more about how to build credit to improve your scores over time. And if you need help with credit mistakes from your past, you can learn more about credit repair and how to fix your credit.

Things You Might Not Know About Credit Scores

Credit scoring is a complex calculation, and the more you know about how credit reports and credit scores work, the better you can take control of your own credit. In addition to knowing the most important factors considered in credit scoring, it can be helpful to know a few other facts about credit reports and credit scores. These are a few things that tend to be most important:

  • Negative information on your credit report can lower your credit scores. That information remains on your credit report for a set period of time. For example, late payments appear for seven years from the date you first missed a payment. Paying off a collection account won’t remove it from your credit report. Bankruptcies can remain on your report for seven to ten years, depending on the type of bankruptcy. The good news is, all negative information will eventually cycle off your credit report. Until it does, focus on the things you can positively influence, including paying all your bills on time.
  • You don’t need to carry a monthly credit card balance in order to build your credit history. You can pay off your credit card bills every month and positively affect your credit standing.
  • Settling accounts for less than the full amount you owe can harm your credit score. Any time you fail to repay a debt as you originally agreed, it can negatively affect your credit. That said, the negative impact of settlement is still less than the negative effect of not paying a debt at all or declaring bankruptcy.

A good credit score can open doors for you. From helping you qualify for the best interest rates and terms when you borrow money to influencing how much you pay for life insurance, some might be doors you never even dreamed existed. Landlords will consider your credit scores when you apply to rent, and even telecom companies might look at your scores before you lease your next smartphone.

Considering how important credit scores are to your overall financial well-being, it’s wise to do everything you can to ensure yours are as good as possible. Regularly checking your credit report and credit scores is the critical first step. When you check your credit score from Experian, you’ll see a list of specific factors affecting it. Focusing on those factors first is the best way to start improving a credit score.

How Good Is Your Credit Score?

Examples: 600, 700, 780, 803
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