Want to Improve Your Credit Score? Here’s What Really Impacts It and What Doesn’t

A credit score is a three-digit number between 300 and 850 that lenders use to assess credit risk and how likely you are to repay a loan on time.

Building a good credit score can unlock major financial progress. It can help you qualify for better interest rates, secure an apartment lease, or even lower your car insurance premiums.

Understanding what goes into your credit score helps you prioritize which habits to focus on first. FICO^® Scores are grouped into five categories, each carrying a different weight:

There are several strategies that can target the most influential credit scoring factors. The ones you choose to focus on depend on your situation. Start by checking where your score falls and reviewing your credit reports for accuracy, then choose one or more of the following methods.

Check your credit score early and often

Before you start on your journey to a better credit score, you need to know where you’re starting from. Review your credit report to see what’s on there, keeping a close eye out for any errors.

Correcting inaccuracies ensures your credit score isn’t being dragged down by incorrect information. You can get a free credit report once a week from each of the three major credit bureaus –  Equifax, Experian, and TransUnion – through AnnualCreditReport.com.

Keep an eye out for the following issues:

• Payments that were wrongly reported as missed or late
• Debts that don’t belong to you and are reported as collections
• Paid-off debts listed as still outstanding

Don’t be surprised if you find inaccurate information. A Credit Checkup study from Consumer Reports found that almost half of participants found errors on their credit reports and that more than a quarter found serious mistakes. If you do find an error, you can dispute it with the credit reporting company – they’re obligated by law to investigate.

Need help contacting credit bureaus? The CFPB provides sample letters and instructions for disputing errors with both credit reporting companies and information furnishers.

Always pay bills on time

Life can be hectic, and sometimes you might forget to pay the occasional bill. But even one late payment can ding your credit score. If you want to improve your credit score, the single most important thing you can do is pay your bills on time.

Payment history is the single most important credit scoring factor, making up 35% of your FICO® Scores.

But don’t worry if you have any past late payments. Although financial records like late or missed payments remain on your credit record for a while, the impact of late payments on your score will diminish over time – especially if you always pay bills on time moving forward.

Here are some tips to help you build up a perfect payment record:

• Set up automatic payments so you don’t have to remember to pay your bills each month.
• Pay at least the minimum amount due, but aim to pay off your balance in full if possible to avoid accruing interest.
• Keep at it every month to fortify your credit score.

Keep your credit utilization low

Just because you have available credit doesn’t mean you need to use it all. Your credit utilization ratio, or the amount of available credit you’re using, accounts for 30% of your score, making it the second most important factor after payment history.

Experts generally advise keeping your credit utilization ratio below 30%, though the lower it is, the better. What does that look like?

• If you have a credit limit of $1,000, keep your balance at or below $300.
• If you have a credit limit of $5,000 across several credit cards, keep your balance across all cards at or below $1,500.

Most credit card companies report account balances to the credit bureaus at the end of each cycle. Plan to pay down your balance to below 30% utilization before the cycle ends to avoid a ding to your credit.

Keep older or unused credit cards open

It’s tempting to close older or unused cards to declutter your wallet. But keeping your oldest credit card open and in active rotation benefits your credit score in the following ways:

• It shows you can manage credit: Older cards help lengthen your credit history, which accounts for 15% of your FICO Scores.
• It counts towards your credit utilization ratio: An open line of available credit boosts your overall ratio, and closing it can hurt your score by reducing available credit.

It’s also smart to use your older cards occasionally so your lender can provide fresh information to the credit reporting bureaus. Here’s how to do it:

• Put a small charge on the card every few months and keep it well below the card’s credit limit to avoid raising your credit utilization.
• Pay off the balance in full each month to build your record of on-time payments.

Ask for a credit limit increase

Increasing your credit limit can help lower your utilization ratio. If you have a history of responsible card usage, consider asking your lender to increase your credit limit.

Credit limit increases sometimes happen automatically as the lender reviews your profile. But other times, you’ll need to request a credit limit increase online or by phone.

Another way to increase your available credit is to get a new credit card. But this comes with both benefits and drawbacks:

• The upside: A new credit card increases your total credit limit, which can positively impact your credit utilization ratio as long as you keep the balance low.
• The downside: Applying for a new credit card typically results in a “hard inquiry” on your credit report, which could temporarily lower your credit score.

Note: Even if your spending limit increases, try not to increase your actual spending. Increasing your spending can diminish the positive effects on your credit score.

Become an authorized user

Got any credit score idols in your life? Their stellar reputation could help you improve your own if they’re willing to make you an authorized user on one of their accounts.

When someone adds you to their established credit card account, that card’s history will appear on your credit file and factor into your credit score.  But if they miss a payment, that will also show up on your credit report – so only go this route if you trust the primary accountholder.

And don’t get someone to add you and then use their card irresponsibly. Just as their poor credit behavior can lower your credit score, your poor behavior can lower theirs. If your only goal is to raise your credit score, the primary user might be more comfortable adding you if they know you won’t be using the card.

You might have heard some ideas to improve your score that we haven’t mentioned above. Here, we debunk some common myths that actually have little to no direct effect on your credit score.

Carrying a balance on your credit

One of the most common credit scoring myths is that keeping a balance helps increase your score.

In fact, maintaining an outstanding balance can negatively impact your credit utilization ratio. Additionally, carrying a balance causes interest to accrue, so you’ll owe more than you initially put on the card. Plan to pay off your balance each month unless it’s unavoidable.

Stopping all card use

Maintaining 0% utilization offers no real benefit and can actually hinder your efforts to improve your credit score.

When you stop using your credit altogether, your card issuer has no payment history to report to the credit bureaus. Eventually, your lender could close the account due to inactivity.

Paying with cash or a debit card

Paying with cash or a debit card demonstrates good financial management, but it doesn’t illustrate your ability to handle credit.

Instead, pay for everyday items, like groceries and gas, with your credit card, then pay off the balance using your checking account. This ensures you only spend money you actually have while boosting your credit.

Using buy now, pay later (BNPL) programs for purchases

Although BNPL is a type of installment plan, it typically won’t boost your credit score as a personal loan will.

Many BNPL plans don’t report on-time payment activity to the credit bureaus, but they may report late or missed payments.

Paying your rent and utilities on time

Most utility companies don’t report payment activity to the three major credit bureaus, so on-time utility payments typically are not reflected on credit reports by default. The same is true for landlords – your rent usually isn’t reported and won’t affect your credit score.

But there are ways to change that. For example, you can use Experian Boost to add on-time payment history for certain household bills, including eligible rent payments, to your Experian credit file. Chime members can connect Experian Boost to their accounts to help boost their credit scores as they pay everyday bills.¹

Getting married

Marriage might join two people legally, but it won’t impact either of your credit scores. In the eyes of the credit scoring industry, your scores are distinctly separate.

Getting a raise

Your occupation, job status, and salary don’t directly impact your credit score – even when you get a raise or take a new, higher-paying job. But if you accept or request a credit limit increase, you could boost your credit score.

Demographic information

The credit scoring algorithm doesn’t factor in personal information such as your age, race, religion, gender, national origin, salary, or where you live.

Certain flattering (and less-than-flattering) financial information

Your net worth, bank account balances, interest rates on your savings, and investing prowess have no bearing on your credit score.

You also don’t have to worry about negative information, like past credit denials and bank account overdrafts, from impacting your score.

How often you check your own credit

Despite rumors to the contrary, checking your own credit does not impact your score. In fact, it’s a good idea to keep tabs on where you stand – especially as you’re actively working to boost your score. Seeing your credit score increase each month can motivate you to keep going.

By demonstrating how well you manage the money you borrow, you can improve your credit score and qualify for better loan and credit card offers. Positive results will accumulate over time if you simply focus on nailing the most impactful scoring factors.

This holds true whether you’re trying to build credit for the first time, working to repair your credit, or aiming for a perfect credit score. As you monitor your progress, don’t forget to celebrate every small score increase along the way!