Skip to main content

Understanding Your Credit Score

Your credit score is an important part of your financial story. Lenders and other organizations use it to determine how financially responsible you are and to estimate the likelihood that you will repay your debts. It can also impact the interest rate you pay on loans, with lower scores paying a higher rate. 

Credit scores range from the 300s to 850, with higher being better; generally a score of 680 or higher is considered good. There are three main credit bureaus in the US (Experian, Equifax and Transunion), and they all use slightly different calculations. This means that your score can vary a bit between bureaus.

Main Factors That Determine Your Credit Score:

  • Payment history – 35%
    Payment history makes up over a third of your credit score. It represents how reliable you are in making regular payments to reduce your outstanding debt.
  • Amount of Credit Used – 30%
    This is the second-largest factor in deciding your credit rating. It represents the amount of money that you owe (your outstanding balance vs. the amount you initially borrowed and/or your credit limit). In other words, the more you could borrow, and the less you owe, the better.
  • Length of Credit History – 15%
    The amount of time you have had credit impacts your credit score—generally, the longer your credit history, the better.
  • Types of Credit Used – 10%
    Managing several different types of credit properly is a positive sign for lenders and shows that you are more financially responsible.
  • Recent Searches for Credit – 10%
    A large number of searches for credit (e.g., applying for credit) will show on your credit record.
  • Additional Factors
    Other factors that could negatively impact your credit score include collection accounts, filing bankruptcy, court judgements or liens.

Tips to Improve Your Credit Score

  • Pay Your Bills on Time - This is the most important factor; if you make a payment over 30 days late, it will remain on your credit report for seven years and hurt your score.
  • Pay Down Revolving Debt - The percentage of credit line you're using on revolving accounts, such as credit cards, has a major impact. Some experts recommend trying to keep this below 30%.
  • Don't Close Your Old Accounts - Length of credit history impacts your score, and is influenced by the age of your oldest account. Try to keep your oldest credit card open, and use it occasionally to make sure it is not closed by the lender for inactivity.
  • Diversify Credit - Credit mix accounts for 10% of your score and illustrates your ability to manage different types of credit. This often happens naturally as your needs evolve (buying a car or home, etc.). One method would be to consolidate part of your credit card balances into a fixed-term personal loan; as opposed to keeping the full balance on credit cards.

We are here to help! If you would like to discuss your credit report and opportunities to improve your score; please give us a call to schedule some time!