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How Credit Scores Work (and How to Raise Yours)
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A credit score is a three-digit summary of how you have handled borrowed money. Lenders use it to decide whether to approve you and what terms to offer. The good news: the score isn't a mystery or a judgment of your character. It is calculated from the information in your credit reports, and you can influence almost every part of it.
Credit reports come first
Your score is built from your credit reports, which are kept by the three nationwide credit bureaus. A report lists your accounts (credit cards, loans, mortgages), whether you paid on time, how much you owe, when accounts were opened, and recent applications for credit. It does not include your income, your bank balance, or your job.
Because the score comes from the report, errors on the report can drag your score down. You are entitled to free copies of your reports from each bureau through the official site, AnnualCreditReport.com. Check them at least once a year and dispute anything that isn't yours or isn't accurate.
The five things that move a score
There are several scoring models — FICO and VantageScore are the most common, and both use a range of roughly 300 to 850 — but they weigh the same basic factors:
- Payment history. The single biggest factor. Paying every bill on time, every month, matters more than anything else. A payment that is 30 or more days late can be reported and can stay on your report for years.
- How much of your credit you use. This is called credit utilization: your card balances divided by your total card limits. Lower is better. Many people aim to keep it under about 30%, and people with the highest scores often keep it in the single digits.
- Length of credit history. The age of your oldest account and the average age of all your accounts. Time is the only fix here, which is why closing your oldest card can hurt.
- Credit mix. Having both revolving credit (cards) and installment loans (like an auto loan) can help a little. Never take on a loan just to improve your mix.
- New credit. Each application for credit usually creates a "hard inquiry." One inquiry has a small, temporary effect. Several in a short period can signal risk.
How to raise your score
1. Never miss a payment
Set up automatic payments for at least the minimum due on every card and loan. You can still pay more manually, but autopay makes sure a busy month never turns into a late mark. If you've already missed a payment, catch up as quickly as possible — the damage grows the longer an account stays past due.
2. Pay balances down — or pay before the statement closes
Card issuers usually report your balance to the bureaus once a month, often around your statement date. If you pay most of the balance before that date, a lower balance gets reported and your utilization drops, even if you use the card heavily. This is one of the fastest legitimate ways to see a score improve, because utilization has no long memory.
3. Keep old accounts open
An old card with no annual fee is valuable just by existing: it adds to your available credit and your history length. Use it for a small purchase every few months so the issuer doesn't close it for inactivity.
4. Ask for a higher limit
If your income has grown or you've paid on time for a while, you can ask your card issuer for a credit limit increase. A higher limit with the same balance lowers your utilization. Ask whether the request will cause a hard inquiry before you agree.
5. Apply for new credit sparingly
Space out applications and only apply for credit you actually want. If you are shopping for a mortgage or auto loan, do your rate shopping within a short window; scoring models generally treat several inquiries for the same type of loan close together as one.
6. Building from zero
If you have no credit history at all, a secured credit card (backed by a refundable deposit), a credit-builder loan from a credit union, or being added as an authorized user on a family member's well-managed card can help you get started. Use the account lightly and pay it in full.
Common myths
- Checking your own score hurts it. It doesn't. Checking your own credit is a "soft inquiry" and has no effect.
- You need to carry a balance to build credit. False. Paying in full every month builds credit just as well and costs you no interest.
- Your income affects your score. It doesn't appear on credit reports, though lenders may ask about it separately.
- Paid-off debt disappears instantly. Accurate negative items can remain for a set period; on-time history after them gradually outweighs them.
Watch out for "credit repair" promises
No company can legally remove accurate, timely negative information from your report. Anything you can do to dispute errors, you can do yourself for free with each bureau. Be cautious of anyone who charges upfront fees or promises a specific score.
The bottom line
Credit scores reward boring consistency: pay on time, keep balances low, let accounts age, and apply only when you need to. Do those things for several months and your score will usually move in the right direction on its own.