Check your credit score Increasing your credit score is easier than you might think. Once you get past the technical jargon, your credit score is governed by a simple mathematical formula.
Once you understand the formula, you just need to provide the credit rating agencies with appropriate data to maximize your personal credit score. Consult an insolvency practitioner to discuss your personal debt situation and options to improve it steadily.
This article explains what your credit score is and how it is calculated. It then walks you through the major components of the credit score formula and explains the weightings for each component.
Finally, we walk you through the steps to rapidly boost your credit score, virtually overnight! Keep in mind the steps you take will be instant, but the credit rating agencies may not officially update your credit score for at least 30 days.
What is Your Credit Score?
Your credit score is not actually a single number. Technically you have 3 credit scores which are calculated from three primary credit bureaus: Equifax, Experian, and TransUnion.
The three credit rating bureaus each calculate your credit score using proprietary models that vary slightly between the three agencies. However, each agency follows the same general factors to evaluate your credit, but they will have some minor differences in terms of how much weight they give to different factors.
This means that your actual credit score could be three slightly different numbers depending on which agency you source your credit score. Don’t worry, your three credit scores will typically be very similar and vary by only a few digits.
How do you Interpret your Credit Score?
After the three credit rating bureaus create a credit report for you, credit scoring agencies like FICO and VantageScore will utilize those reports and assign a numerical value to your credit score.
The numerical value ranges from 350 to 850. Most lenders evaluate your credit score based on where it falls within general ranges. The general credit score ranges are included below:
- Excellent Credit: anything greater than 750
- Good Credit: between 700 and 750
- Fair Credit: between 650 and 699
- Poor Credit: between 600 and 649
- Bad Credit: below 600
Other Factors that Influence the Credit Decision
Keep in mind, these are just general credit score ranges and individual lenders will make decisions based on your credit score as well as the financial condition of that lender as well as general economic conditions. They may factor other things into the equation, like in the case of SCCU hero loans and a variety of other methods.
For instance, some lenders may be aggressively growing certain parts of their business like credit cards or even home loans. These lenders are much more likely to approve people with lower credit scores than other lenders that are not actively growing those business segments.
General economic conditions also influence approval factors. During periods with strong economic growth, consumer default rates decline and lenders often compete more intensely with each other for new business. During these growth periods, lenders will be more likely to approve borrowers with lower credit ratings.
Conversely, when there is an economic recession, lenders tend to be more restrictive because consumer default rates increase. During a recession, even borrowers with stronger credit ratings may find it more challenging to get approved with favorable terms.
Why is your Credit Score Important?
Your credit score is important for two main reasons. The first reason is because your credit score will determine whether lenders will approve you for a credit card, auto loan, home mortgage, and in some cases will even be checked by a prospective employer.
The other main reason is that your credit score will determine the terms you will be approved for credit from a particular lender. The most important term is your interest rate. Borrowers with strong personal credit scores can save thousands of dollars by receiving a slightly lower interest rate on a 30 year mortgage. You really can’t over state the value of high credit score to your long term financial health.
How is your Credit Score Calculated?
VantageScore and FICO calculate your credit score based on their proprietary scoring models. They calculate your credit score using data from your credit reports provided by Equifax, Experian, and TransUnion. VantangeScore and FICO utilize 5 major factors when calculating your credit score:
- Payment History (35% weighting)
- Amounts Owed (30%)
- Length of Credit History (15%)
- Credit Mix (10%)
- Credit Inquiries (10%)
Keep in mind, the agencies all have slight differences in how they apply these factors, so your score will typically vary by a few points depending on which agency you use for your credit score.
Payment History (35% Weighting)
Payment history captures your debt repayment history. When you have taken out debt in the past, do you pay on time? Are there any missed payments in your past? Lenders believe your past behavior is a good indicator of your future credit behavior, so they weigh this factor strongly at 35% of your overall credit score.
You’re payment history will include your credit cards as well as any auto loans, mortgages, and any other installment loans. Installment loans are generally given slightly more weight than revolving loans. Revolving loans are considered credit cards and home equity lines. Essentially, anything that allows you to borrow and repay over multiple time periods.
Impact of Late Payments
If you have late payments, your credit score impact will take into consideration a variety of factors including:
- How late was the payment?
- How much was owed when the late payment occurred?
- When and how long ago did the late payment occur?
- The total number of late payments?
The impact of late payments can be reduced by the length of time since they last occurred.
Public Record Filings
Your payment history is also directly impacted by negative public filings. Unfortunately, negative public filings can have a big downward impact on your credit score. The most common public filings include:
- Bankruptcies
- Lawsuits
- Wage garnishments
Both chapter 11 and chapter 7 bankruptcies are treated exactly the same by FICO in terms of the impact on your credit score.
You can take some comfort in the fact that FICO does consider a few mitigating factors that can lessen the negative impact of public filings on your credit score:
- Amount of time since the public filing occurred?
- The number of occurrences.
How Long Do Late Payments Stay in your Credit Report?
In general, negative credit information will stay on your credit report for 7 years from the date when the negative credit issue occurred. However, some negative credit items can stay on your credit report for different time periods. The most notable time periods are included below:
- Chapter 7, 11, and 12 bankruptcies remain for 10 years from the filing date.
- Completed Chapter 13 bankruptcies remain for 7 years from the date paid and will remain for 10 years if not completed.
- New credit inquiries will remain on your credit report for 2 years.
- A defaulted account referred to for collections will remain for 7 years from the date of the missed payment that ultimately triggered the default.
Amounts Owed (30% Weighting)
Amounts owned is also known as your credit utilization ratio. In simple terms this means how much credit you are using compared to your approved credit limit.
For example, if you had a $10,000 credit limit and carried a $3,000 average outstanding balance, your credit utilization ratio would be 30% ($3,000 / $10,000).
This is an important ratio to lenders because if you have a high credit utilization, it indicates to lenders that you may be at increased risk of missing a payment or even defaulting on your obligations.
A high debt utilization ratio negatively impacts your credit score and a low credit utilization ratio benefits your credit score.
What credit accounts are included in the ratio?
Your credit utilization ratio includes all open revolving credit and installment loans. So this includes credit cards, home equity lines, car loans, mortgage debt, and other installment loans you may have open.
When calculating the ratio, the amount of debt used is the outstanding amount of debt that shows up on your statement at the end of the month.
Length of Credit History (15%)
The length of your credit history is simply the amount of time you have maintained a personal credit history.
This is one of the reasons why it is a good idea to open a single credit card when you are 18 years old and practice developing good payment financial management habits at a young age.
How is your Length of Credit History Calculated?
Your credit history includes three main factors:
- The age of your earliest credit account.
- Amount of time other credit accounts in your account have been open.
- Length of time since your credit accounts have been used.
Does Closing Credit Cards Impact your Length of Credit History?
When you close a credit card, that credit card will not longer be included in the average age of your credit history.
This means that it is very important to identify your oldest credit cards and keep those cards actively utilized. If you don’t use a particular credit card at all, the credit card company may decide to close that credit card.
If you accidentally close your oldest credit card, the length of your credit history can take a negative hit because your average credit age will decline.
This means you should try to close your most recently opened credit cards first. By closing credit cards with a low average age, it will have a much smaller impact when you close a credit card.
Credit Mix (10% Weighting)
Your credit mix represents the diversity of your various credit accounts. This means that you have mix of different credit accounts like unsecured credit (credit cards) and secured credit (mortgage and auto).
This also includes the mix between fixed installment loans as well as revolving loans.
This means that it is better to have a single credit card rather than have no credit cards at all. This ratio also measures the total number of credit accounts that you have.
So it is a good idea to have a various credit accounts, but not to have too many accounts.
Unfortunately there is no set limit in terms of how many open credit accounts you should maintain before it negatively impacts your credit score for having too many.
In general, the guidance is that the number of open credit accounts can be increased based on a higher credit score. If you have a lower credit score, you may want to consider limiting the amount of open credit accounts you have.
Credit Inquiries (10% Weighting)
When you open a new credit card, apply for a loan, or even open certain consumer accounts like a new cell phone plan, the merchant will check your credit.
When someone completes a credit check, this will remain on your credit record for two years from the inquiry date. However, new credit inquiries will only be included in your credit score for 12 months.
Does Checking Your Personal Credit Score Negatively Impact your Credit Score?
Checking your own credit score will not impact your credit score. You just have to make sure you check your credit score through an official channel.
Ways to Quickly Increase Your Credit Score within 30 days
Now that you understand the factors that impact your personal credit score, we can walk through specific steps and strategies to maximize your personal credit score.
There are a few main steps you need to take to improve your credit score. We will discuss each of these steps in more detail:
- Find out your current credit score from all 3 agencies.
- Read each credit report, identify any errors, and report those errors to the credit rating agency.
- Develop financial habits and strategies to maximize the most important credit scoring ratios.
- Consider more advanced strategies to improve your score if you have good financial habits and a strong existing credit score.
How to Get Your Personal Credit Score
In order to improve your credit score, you need to know exactly what your credit score is today. You also need to know your credit score from all 3 credit scoring agencies.
The best way to do this is by requesting your free credit score from Annual Credit Report. Everyone can access their credit report from each of the three agencies once per year for free.
When you request your credit score it will show up on your credit report, but it will not negatively impact your credit score.
Other Places to Find Your Credit Score
There are a number of other sources where you can access your credit score without triggering a formal credit inquiry.
Keep in mind these sources typically show your personal credit score from a single credit rating agency and may not provide the same level of in depth reporting that you can get from your full reports at Annual Credit Report.
However these sources are still useful because they provide you with a real time view of your credit score that you can access any time.
Additionally, since all three rating agencies generally calculate a very close score, you have reasonable confidence that if you use a single agency, the other two agencies will typically have very similar scores.
- Credit Sesame: provides your credit score for free from TransUnion.
- Credit Karma: provides your credit score for free from TransUnion and Equifax.
Free Credit Scores from Credit Cards
Many credit cards now provide you with a free credit score directly from their app or your online credit card account. These reports typically just include a score from one of the agencies with a generally summary of the important factors impacting that score.
They are good source for real time trends and it won’t count as a credit inquiry on your account.
Keep in mind that credit card credit scores are just summary scores and are not a substitute for your full credit report.
- American Express Credit Cards: provides your credit score from Experian.
- Barclay Credit Cards: provides your credit score from TransUnion.
- Citi Credit Cards: provides your credit score from Equifax.
- Discover Credit Cards: provides your credit score from TransUnion.
Fixing Inaccurate Credit Reports
In a 2012 study, the Federal Trade Commission found that 1 in 5 consumers had an error on their credit reports from one of the three main credit reporting agencies.
This means that a little more than 65 million people currently have one or more errors on their credit reports.
The most common credit report errors include:
- Incorrect personal information (address, full name, birth date, and social security number).
- Missing open credit accounts.
- Late payments that were paid on time.
- Open credit accounts that do not belong to you.
- Credit inquiries that you did not make or from a merchant that you didn’t authorize.
The easiest way to spot errors is by comparing your three credit agency reports. Typically one report will have information that is inconsistent or different from the other two reports.
Keep track of all errors and organize the errors by reporting agency.
Fixing credit report errors will have an instant and sometimes very dramatic positive impact on your credit score.
How to Fix Credit Report Errors
After you have a full list of potential reporting errors, you need to directly contact the credit reporting agency responsible for the error.
We have provided a link below to credit dispute online submission form for each of the major credit rating agencies below:
Improving Your Credit Utilization Ratio
Your credit ratio has a very significant impact on your overall credit score with a 30% total weighting.
This means that if you rapidly pay down outstanding credit card debt and limit your credit usage, your credit score will rapidly improve.
Request a Credit Limit Increase
If you already have good credit, call your credit card company and request an increased credit limit. The larger increase that gets improved, the larger the positive benefit will be on your credit score.
Just make sure you minimize your actual credit card usage when you receive an increased credit limit.
Your credit utilization ratio will benefit from both a lower outstanding credit usage and a higher credit limit.
Keep in mind, most credit card companies will complete a credit inquiry when you request a credit limit increase. However this credit inquiry only represents a 10% weighting compared to the Amounts Owed ratio which represents a 30% credit score weighting.
This means the positive impact from a credit line increase is 3x more beneficial than the smaller negative impact of a credit inquiry.
Request a New Credit Card
Many people are very surprised that requesting a new credit card can actually improve your credit score pretty significantly. Opening a new credit card has the same potential benefits that an increased credit limit offers.
The difference is that a new credit card may unlock a larger credit limit than what is available under an existing credit card.
Keep in mind, this strategy only makes sense for people with strong existing credit. A new credit card is more likely to offer a higher limit if you already have a strong credit score.
You also need to be very careful to limit your spending under the new credit card.
This strategy is very effective for rapidly increasing your credit score because your debt utilization is weighted 3 times more than new credit inquiries on your credit score.
However if you overspend on your new credit card, the positive benefit will not be as significant.
Improving your Payment History
You don’t have as much control over your payment history as you do with your overall debt utilization. The main thing to remember is to make sure you meet your monthly payments and you clear up any outstanding delinquencies on your credit.
If you have any older credit accounts that have been referred to a collection agency, you may be able to contact that credit agency and request that they stop reporting that delinquency to the credit reporting agencies in return for your payment.
Make sure that if a collection agency agrees to stop reporting the delinquency that you ask them to provide the request in writing.
Delinquent and late payments can remain on your credit for 7 years, but late payments are only reported to credit agencies if they are late for at least 30 days.
So if you miss a credit card payment by a day, don’t stress out about the missed payment date getting reported if you make payment as quickly as possible and before 30 days from the payment date.
Maximizing Length of Credit History
Your length of credit history is calculated based on your average age of all open credit accounts. The way to maximize this ratio is by keeping your oldest credit cards active.
If you have to close a credit card, always choose a credit card that has been opened for the least amount of time.
If you close a credit card that has been opened for a very long time, this can have very negative results on your personal credit score.
Open a Credit Builder Savings Account
Credit building savings account can be a nice option for people with weaker credit scores or limited credit history.
These accounts are structured to help you build a stronger payment history by combining an installment loan with a savings account.
What is a Credit Builder Account?
Credit builder accounts will provide you with a small installment loan that you repay over a period of 12 to 24 months.
After you repay the installment loan, the account converts to a standard savings account with your repaid loan as the opening balance.
Your initial installment loan along with your on-time monthly repayments are reported to all 3 credit rating agencies which helps to increase your credit score.
This is a good option to consider because it doesn’t require opening a credit card and doesn’t require a hard credit inquiry. Additionally the savings accounts offer FDIC protection.
The Credit Strong savings deposits are held in Austin Capital Bank which is an FDIC insured institution. You can also read our full Credit Strong Review for more information about credit builder loan accounts.
Open a Secured Credit Card
If you are already starting with a weaker credit score, opening a secured credit card will provide the most rapid credit score improvement for you.
A secured credit card requires you to maintain a cash deposit in a checking account that secures the credit card line. Your secured credit card limit is limited to the amount you deposit in cash.
However, your payments history will benefit more strongly if you demonstrate good payment habits with a secured credit card.
Limit Credit Inquiries
Credit inquiries only have a small impact on your overall credit score. However, if you regularly open store credit cards or purchase consumer products like cell phone plans that require a credit inquiry, this can still have a negative impact on your score.
By evenly spreading out credit inquires over a period of multiple months, rather than in one single month, you can limit the negative impact of a new credit inquiry on your credit score.
Credit Score Improvement Strategies for Weak Credit
Borrowers with weaker credit scores need to utilize specific strategies to improve their credit score. These strategies are most useful for borrowers with a credit score in the 600’s or less.
Keep in mind that lower credit scores may take longer to increase than borrowers starting out with higher scores.
Each step is highlighted below in the order of the fastest positive credit score impact:
- Report any credit report errors to the appropriate credit rating agency.
- Open a secured credit card.
- Reduce average credit usage.
- Establish a goal of paying off monthly credit card balances in full each month.
- Limit new credit inquiries.
- Resolve any payment delinquencies.
Credit Score Improvement Strategies for Strong Credit
Borrowers with strong existing credit scores are already starting out with a big advantage.
These borrowers should have a 700 credit score or higher before following any of these strategies.
Each step below is listed in order of the most rapid credit score impact:
- Report credit report errors to the appropriate credit rating agency.
- Improve your credit utilization ratio (either open a new credit card or request a higher credit limit and minimize credit usage).
- Keep your oldest credit cards active and open.
- Continue to maintain good financial habits and meeting payment obligations on time.
The most important steps for borrowers with strong existing credit are correcting credit report errors and improving your credit utilization ratio.
I was able to rapidly improve my own credit score by opening a new credit card with a high credit limit and minimizing my overall credit usage.
How I Rapidly Improved My Credit Score
By using the strategies highlighted above, I significantly improved my credit score from all 3 credit reporting agencies.
I used Annual Credit Report to source my credit reports from all 3 agencies. My starting scores from each credit rating agency is highlighted below:
- Equifax – 684
- Experian – 726
- TransUnion – 738
In order to increase my credit score, I utilized the strategies I described above.
My credit score with Equifax happened to be negatively effected because I mistakenly closed a credit with a high average age. In order to improve my scores, I focused on maximizing my debt utilization ratio.
I was able to accomplish this by opening a new credit card with a higher credit limit while limiting my actual credit card spending.
My current credit scores with each agency are highlighted below:
- Equifax – 825
- Experian – 803
- TransUnion – 817
