Bettering your financial health is a lot like improving your physical health: lasting change takes time and patience, and quick-fix methods will invariably backfire.

Your credit score is a significant part of your overall financial health. A score in the “excellent” range (750 to 850) allows you access to the best interest rates, as well as the most generous spending limits and rewards programs when applying for new lines of credit such as credit cards, auto loans, or a mortgage. Not to mention, potential landlords and employers often look at an applicant’s credit score to determine who they’ll trust with property or a job.

It’s important to note credit scores can vary based on the agency or company that compiled the score. However, the most common type of credit score, used by 90 percent of the top lenders, is one created by the Fair Isaac Corporation and is known as a FICO Score.

Base FICO Scores range from 300-850. The higher one’s credit score the less likely an individual is to default on making payments.

Credit Score Formula

There are five factors that are used to compile one’s FICO credit score and each carries a varied weight:

Payment History (35%)

The most heavily weighted factor in determining your credit score. Your payment history reflects your ability to pay on time.

Too many negative marks in this category can hurt your score considerably. However, one or two instances of a late payment typically won’t bring down your overall score if you have a history of on-time payments.

Types of accounts and records considered in determining payment history score:

• Credit cards (Visa, MasterCard, Discover, American Express, etc.)
• Retail-brand credit cards (Gap Visa, Victoria’s Secret Visa, Apple Barclay’s, etc.)
• Installment loans (Loans you make regular payments on like auto loans)
• Finance company accounts
• Mortgage loans
• Bankruptcies
• Lawsuits
• Wage attachments

Credit Utilization (30%)

Lenders like to see you can handle your credit responsibly. Owing money on a credit card account doesn’t necessarily mean you’re a high-risk borrower. But if you are consistently using a significant percentage of the credit available to you, it can imply to lenders that you are overextended and may miss payments in the future.

A good rule of thumb is to not utilize more than 30 to 40 percent of your credit limit. For example, if you have a $10,000 limit on your credit card, make sure to not have more than $3,000 to $4,000 worth of charges on the card at any given time.

Length of Credit History (15%)

A long history of responsible credit use helps keep your score high, but you can still have a high credit score if you haven’t been using credit for a long time, depending on how the rest of your credit report looks.

Factors considered when it comes to credit history:

• How long credit accounts have been established
• Age of your oldest account
• Age of your newest account
• The average age of all your accounts
• How long specific accounts have been established
• How long it has been since you used certain accounts

Credit mix (10%)

Diversity of credit in use demonstrates to lenders that you practice responsible debt management. A diverse collection of accounts might include credit cards, a mortgage, and installment loans, such as personal, auto, and education loans.

New credit (10%)

Opening many new lines of credit in a short period is a red flag to many lenders, as it may imply to creditors that you are on the verge of overextending yourself financially.

What’s Not Included in My FICO Score?

While a wide range of information from a multitude of sources is used to compile your credit score, there is certain information that is never used to compile your credit score, including:

• Your race, color, religion, national origin, sex, and marital status
• Your age
• Your salary, occupation, title, employer, date employed, or employment history
• Where you live
• Any interest rate being charged on a particular credit card or another account
• Items reported as child/family support obligations
• Requests for a credit report
• Information not found in your credit report
• Information not proven to be predictive of future credit performance
• Whether you are working with a credit counseling agency

9 Ways to Improve Your Credit Score

If your credit score isn’t entirely where you’d like it to be, don’t worry! It’s never too late to improve your score. Check out our nine tips below to raise your credit score!

Fix Errors on your Credit Report

Order a copy of your credit report annually and examine it thoroughly*. Specifically, be on the lookout for mistakes. Many consumers frequently find score-harming inaccuracies on their credit report such as accounts erroneously showing up as delinquent or outdated information that should not have appeared on the report.

By law, each of the three national credit reporting agencies (Equifax, Experian, and TransUnion) are required to give you one free copy of your credit report per year at your request. You can order your report from each of the three credit reporting companies at the same time, or you can order them separately.

*To order a copy of your credit reports, visit annualcreditreport.com or call 1-877-322-8228.

Don’t Close Old Accounts

While it makes sense to close an unused account, doing so could negatively affect your credit utilization rate. If your oldest credit lines happen to be credit cards with a high annual fee, many such cards have a no-fee version that you can request a downgrade to instead.

Automate Minimum Payments

Since payment history counts for so much of your score, set up automatic payments to cover at least the minimum due each month. While you should always pay more than the minimum, automating payments will keep you from missing a payment or paying late fees.

Pay Old Debts First

Recent changes to how credit scores are calculated means that paying off delinquent accounts may give your score an extra boost. If you have a handful of accounts to settle, pay the oldest debt first.

Diversify Your Lines of Credit

Lenders like to see that you can handle many different kinds of credit. Adding an installment loan like a small bank loan (that you can pay off within the term limits, of course) can help improve your credit score. Many credit unions even offer credit-building loans for just this purpose. 

Request a Credit Line Increase

Your credit to debt ratio is the second-highest factor in determining your score. One way to increase this ratio in your favor is to boost the credit available to you on an existing line of credit by requesting an extension from your lender. But, be cautious not to allow your balances to increase right along with your new limit.

Become an Authorized User

Becoming an authorized user on the credit card account of a close friend or family member will help improve your score, as long as both parties keep the balance low and continue to pay on time. As an authorized user, you’ll begin building credit history immediately.

Avoid Flurries of Hard Pulls

A hard pull occurs with your consent when you apply for new credit, such as for credit cards or loans. Applying for too many loans or cards in succession may be a red flag to lenders. Limiting hard pulls to no more than one or two per year will help keep your score steady.

Attach Statements to Negative Marks on Your Credit Report

You are allowed to attach comments of up to 100 words to address negative marks on your credit. Explaining any mitigating circumstances that kept you from keeping your credit in excellent shape may help lenders understand you and your situation, and get you back on track to demonstrating responsible credit use.

Taking Responsibility for Your Credit Score

No one has more interest in protecting your credit than you. Once you improve your credit score, be sure to protect it! Check it yearly for errors and suspicious activity. Develop good financial habits to keep your balances manageable, make payments in a timely manner, and be sure to maintain a healthy credit to debt ratio. Before you know it, you’ll have a score you can be proud of.