How to improve your credit score

Back to financial education | Credit & debt, | Credit cards, | Loans

February 12, 2024

6 min read

A good credit score can create many financial opportunities. Working toward building your credit history and raising your credit score can help positively impact your financial future. Whether you’re new to credit or recovering from financial setbacks that have damaged your score, these tips will help you better understand how your credit score works and how to improve it.

Here’s what we’re going to cover:

What is a credit score?
How my credit score is calculated
Why does my credit score matter?
Ways to improve my credit score
How fast can I improve my credit score?
Oportun: Affordable lending options designed with you in mind

Key takeaways:

Your credit score is an indicator of your creditworthiness and debt management skills.
A good credit score could help you access lower-cost credit, get favorable terms and interest rates, lower your insurance premiums, get approved for rental units, and eliminate the need for utility deposits. Some states even allow potential employers to review credit reports before they extend a job offer.
Responsible financial habits like making bill payments on time and in full can help improve your credit score over time.

What is a credit score?

A credit score is a numerical representation of an individual’s creditworthiness, indicating the likelihood that they will repay borrowed money. In the U.S., the most commonly used credit scoring model is the FICO score. FICO scores range from 300 to 850, with higher scores indicating better creditworthiness.

300–579: Poor
580–669: Fair
670–739: Good
740–799: Very good
800–850: Exceptional

When you apply for a personal loan, credit card, or mortgage, lenders often check your credit score to determine whether you’re a reliable borrower. A high score allows you greater access to credit, while a low score may reduce the number of credit cards and loans you are eligible for.

How your credit score is calculated

Your credit score is calculated based on different aspects of your credit use. Scoring models use information about credit accounts to determine your score, including the types of credit you use, how much debt you have, and how often you pay your credit card bills or loan payments.

Payment history accounts for 35% of your score: This is the record of your payments on credit accounts, including credit cards, mortgages, and other loans. On-time payments have a positive impact, while late payments, defaults, and delinquencies can negatively affect your score.
Amounts owed accounts for 30%: Also known as credit utilization, amounts owed is the ratio of your current credit card balances to your credit limits. Lower ratios are generally considered better, as they suggest responsible credit management. For example, if you have a credit limit of $1,000 and you spent $500, you’ve utilized half of your available credit.
Length of credit history is 15%: Your credit history considers the average age of your credit accounts and the length of time since you last used them. A longer credit history can be beneficial for your score.
Credit mix is 10%: Credit mix indicates the types of credit accounts you have, such as revolving and installment accounts. Credit cards are revolving, while mortgages are installment loans. Having a mix of credit types can positively impact your score.
New credit is 10%: New credit focuses on recently opened credit accounts and hard credit inquiries. Opening multiple new accounts in a short period and having numerous hard inquiries can be seen as a risk.

Why does my credit score matter?

Your credit score is a simple way for lenders and other entities to determine whether you’re a reliable borrower. Here are some reasons why it’s important:

Access to credit: A good credit score improves your access to various forms of credit. It makes qualifying for credit cards, loans, and other financial products easier. A poor credit score may limit your ability to obtain credit or restrict you to unfavorable loan terms.
Interest rates: Your credit score significantly impacts the interest rates you can qualify for. A higher credit score may encourage lenders to offer you lower interest rates. On the other hand, a lower credit score may result in higher interest rates, which can affect the cost of borrowing over time.
Insurance premiums: In some cases, insurance companies use credit scores to determine the premiums for auto and homeowner’s insurance. A higher credit score may result in lower insurance premiums.
Rental applications: Landlords may check your credit score as part of the rental application process. A higher credit score may increase your chances of being approved for the rental property of your choice.
Utility deposits: Some utilities may charge a deposit for people with lower credit scores.
Employment opportunities: Some employers may check your credit score as part of the hiring process, especially for positions that involve financial responsibilities. This is not legal in all states.

Ways to improve your credit score

These are a few ways to improve your credit score over time:

Make consistent on-time payments

Since your payment history makes up the largest portion of your credit score at 35%, on-time payments can make a big difference. Set up reminders or automatic payments to ensure you pay all your bills by their due dates.

Aim for a low credit utilization

Keeping your credit card balances low relative to your credit limits lowers your credit utilization (amounts owed). A lower credit utilization ratio can positively impact your score since it demonstrates responsible borrowing habits.

Keep old accounts open

The length of your credit history affects your credit score. Closing old accounts can shorten your credit history, so consider keeping older accounts open even if you’re not actively using them.

Review your credit report regularly and dispute errors

Regularly review your credit reports from all three major credit bureaus to stay up to date on your account information. Dispute any inaccuracies or errors you find on your credit report.

Consolidate your debt

If you have considerable high-interest debt, consider consolidating your debt with a personal loan for more manageable repayment. Debt consolidation may reduce your monthly payments and overall interest expenses.

Add to your credit mix

Having a mix of credit types, such as credit cards, installment loans, and mortgages, can positively influence your credit score. However, improving your credit mix may backfire if you take on debt you don’t need. Only take on new credit when necessary.

Settle past accounts

Work to settle any past due accounts or debts in collections. Negotiate with creditors and consider payment plans to address outstanding balances.

Become an authorized user

If someone you trust has a credit card with a good payment history, ask if you can be added as an authorized user. This can have a positive impact on your credit score. But be aware that the way you use the credit card will impact the primary cardholder as well—if your expenses on the card go unpaid, your actions could lower someone else’s credit score.

Get professional advice

If you’re struggling with significant debt or credit issues, consider seeking advice from a reputable credit counselor or financial coach. They can provide guidance on managing your debts and improving your financial situation.

How fast can I improve my credit score?

Improving your credit score is a gradual process, so you won’t see a big change overnight. The amount of time it’ll take to improve your score may depend on the factors affecting it. For instance, if a fraudulent account or incorrect information has lowered your score, it may return to normal once the error is resolved. However, genuine late payments or delinquencies may take longer to recover from. If you’re working on improving your credit, regularly monitoring your credit reports, addressing any inaccuracies, and maintaining positive financial behaviors will contribute to long-term success.

Oportun: Affordable lending options designed with you in mind

Now that you understand how to improve your credit score, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about: