Clark Howard

Credit score | How to improve your number

You’ve set out your goals, made a plan, and you’re finally starting to feel pretty good about things.

You start thinking about your next move — maybe a credit card, a new car, whatever it is — and then you realize there’s one very important piece missing.

“Wait, what’s my credit score?”

It’s like getting clotheslined. (If you’re unfamiliar, this is when you’re running and someone sticks their arm out, like a clothesline, and it knocks you flat on your back — so not fun.)

But you’re not alone. In fact, most Americans don’t know their credit score and or even what factors make it go up or down.

To learn more on how credit works, including your credit reports and credit score, check out our guide here .

Understanding how your credit score works and how your behaviors affect it is crucial to your overall financial health.

But if you develop the right habits and avoid big mistakes — you can keep your credit score in good shape and reach your big goals.

And it doesn’t have to be super complicated. Once you grasp a few important basics, you can adjust your routine and make better decisions with your money.

Your credit score in a nutshell

Let’s do a quick overview of credit scores, and then we’ll get into what you can do to improve it!

Your credit score is a number that represents how well you’ve managed all of your financial obligations (your bills, accounts and debts) over time. The number is determined by the three main credit agencies, based on the information in your credit reports.

Think of it as your credit scorecard — and the higher the better.

When you apply for a loan (credit card, car loan, mortgage etc.), lenders wants to know what kind of risk they’re taking by giving you the money — how likely is it that you’ll pay them back?

If you have a good credit score, they assume they can trust you, and they’ll give you a better deal.

If you have a bad score, getting a loan will cost you a lot more money or you may not even be able to get one.

And here’s the key: To get a good credit score, you have to constantly keep tabs on everything so you can take steps to manipulate your credit in your favor.

And the way you do that is by understanding what factors make up your score, what damages it and how you can improve it.

Factors that impact your credit score

First, people often think their age impacts their score, but how old you are has nothing to do with it.

There are five main factors that determine your credit score:

  • 35 percent: Your payment history
  • 30 percent: Amounts owed
  • 15 percent: The length of your credit history
  • 10 percent: New credit
  • 10 percent: Mix of credit

What damages your score

Let’s look at a few specific behaviors and other things that cause the most damage to your credit score.

Based on the main factors that affect your credit score, here are a few common things that cause it to drop — things you want to be aware of and avoid if you can (and these numbers are estimates, but they’ll give you an idea of how important it is to avoid these things):

  • Late and missed payments: If you're late on all of your bills in one month – your score could drop by 75 – 125 points.
  • Maxed out credit cards: Reached the limit? That will take somewhere between 20 and 70 points off your credit score.
  • When you apply for a new credit card, your credit score will temporarily drop around 10 to 12 points.
  • Having no or very little credit history: If you've never had any type of credit in your name, or you've only had a couple of bills or maybe one credit card — you will likely have a low credit score.

Timing is very important with credit. When you have big goals you want to reach, you have to understand what’s going on with your credit in order to make sure you’re financially prepared for them. And this doesn’t just mean saving enough money, because even with a down payment, a low credit score will cause you to pay much higher interest rates — often so high that you can’t even afford the  loan because the monthly payments would be too much.

You have to know how certain mistakes or decisions are going to affect you.

When it comes to credit history, ideally you want to start building credit as early as possible, which is why it's a good idea for college students to use a credit card to start establishing credit —  as long as they can handle it!

How to improve your credit score

The one-size-fits-all rule for improving your credit score is to develop responsible habits!

OK, so what does that even mean?

You have to get into a sustainable routine to set yourself up for long-term financial success. And when you’re trying to improve your credit score, you’ll likely need to put that responsible routine into overdrive.

Here’s how to do that.

Based on the factors that impact your score, here are some of the best ways to improve it and maintain good credit!

    • When you get your credit reports, if you see any mistakes, you need to take steps to fix them immediately.
    • If you see any old unpaid bills that are yours, pay them off as quickly as you can.
    • If you have any small debts you owe, get them paid off as soon as you can. The less you owe, the better — and it'll help you keep tabs on the bigger stuff.
    • Your credit reports and score aren't calculated on a specific day each month — they're a "snapshot" of your overall financial health at any given time.
    • If you make multiple payments on your debt each month, not only will that help you pay it off faster, but it will also show a lower balance each time your credit reports pull in new information.
    • 30% of your score is based on how much of your available credit you're using — so you have to pay attention to your account balances.
    • Even if you have a high credit card limit, don't use it (it hurts your score). The higher the balance gets, the harder it is to control it and get it paid off.
    • If you realize you're using more than 30 percent of your total available credit, don't charge anything else on the card until you start paying the balances down — and try to do that as quickly as you can.
    • If you've got a long way to go, stick your cards in the freezer and use cash.
    • This is SO important – in fact, it's the most important factor to keep in mind when it comes to your credit score and improving it.
    • You never want to miss a payment on any bill, credit card, store card — nothing.
    • Building a history of on-time payments will really help improve your score.
    • So don't let a dumb late bill mess you up.
    • If you're forgetful, set a reminder for each bill every month and when it pops up, pay it right then.
    • 3 late payments I didn't know about followed me around for years — so I have reminders and sticky notes for EVERYTHING.
    • Make it a priority!
    • Ideally, you want to pay your credit card bill in full every month before the due date — which is why you should only charge what you can actually afford to pay off.
    • If you already have debt that you can't pay off in full quite yet, try to at least pay more than the minimum.
    • The required monthly minimums on credit cards are really low because it's good for the bank (not you)  since only paying the low minimum each month would take you longer to pay off the balance thanks to the high interest rates on credit cards.
    • So pay as much as you can each month to get balance down — it looks better to lenders and you'll pay less in interest.
    • One other note on minimum monthly payments: If you pay the minimum amount on time, you avoid paying other fees, like late payment fees — but you still get charged interest, as long as there is a balance.
    • If you have very little to no credit history, or want to improve your score, a credit card can help.
    • Charging small amounts on a credit card and paying off the balance in full each month will help increase your score.
    • The key though is paying off the total balance on time each month — I know I'm beating a dead horse on this, but it's THAT important.
    • So if you don't have a credit card, get one — and use it responsibly!
    • If you only have one or two cards, getting a third one can also help your score — just don't open a new card too close to when you want to get a bigger loan, like a mortgage — because your score will temporarily drop – and then improve as you use it responsibly.
    • Parents or spouses can also consider making you an authorized user on one of their existing credit card accounts. An authorized user can make purchases with a credit card but has no obligation to make payments. (That responsibility falls on the primary cardholder — so your spouse, parent or anyone else who adds you to the account.) This is a great way to start building credit and then eventually get your own card.
    • If you have a credit card and a good history of on-time payments, your credit card company may negotiate with you and increase your credit limit (s). By increasing your available credit and keeping your balances low, that will help improve your credit utilization rate — one of the biggest factors that makes up your score.
    • Keep in mind: this strategy will only work in your favor if you don't increase your spending and keep your account balances low. A higher credit limit is not a pass to charge more on the card — you must be disciplined about keeping your spending down if you want to improve your credit score!

Final thought

So many people ignore this extremely important part of their finances — either because they don’t want to face it or just don’t think it’s a big deal.

Facing your credit is the only way to improve it and prepare for your bigger goals in life!

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