Dad looking at mutual fund in newspaper

If you’ve ever applied for a loan, you know your credit score is important. After all, it can be the difference between buying a new car or continuing to drive your old one — or even the determining factor when it comes to the type of house you’re approved to purchase. What specifically impacts your credit score, and how can you improve it if it’s less than optimal?

What goes into your credit score?

The three credit-reporting agencies (TransUnion, Experian, and Equifax) develop your credit report and score by looking at your recent financial activity, including:

  • When you applied for credit, regardless of whether you were approved.
  • Loans you currently have. They review when you took out the loan, your credit limit, payment history, and balance on the account as of the last statement date.
  • Closed accounts. These will stay on your credit report for up to seven years.
  • Bills that have been sold to collections agencies.
  • Public records, such as court judgments or bankruptcies.

How to improve your credit score.

It may not be easy and it won’t happen overnight, but you should see progress if you consider these tips:

  • Give yourself time. There’s no fast track to a good credit score. It takes two years of solid credit management to even begin digging yourself out of a bad credit-score hole. If your score isn’t where you’d like it to be, the sooner you start improving it, the better.
  • Stay current on your payments. Your payment history makes up about 35% of your credit score and is the most weighted of all the score factors.1 Even a couple of days’ delay on one or two payments can harm your score. Set calendar reminders or automatic payments to help yourself stay current. Be sure that you have enough funds in your bank account to cover automatic payments.
  • Keep an eye on your debt. At 30%, debt is the second-most important factor in determining your credit score.2 Reporting agencies look at your “utilization ratio” — how much of a balance you’re carrying compared to your available credit. Using a high percentage of your available credit can negatively impact your score, even if you pay it off each month. Work around this by paying off all or most of your balance the day before the billing period closes. This way, the reporting companies will see a low balance and utilization ratio.
  • Mix up your debt. If you only use credit cards or only have loans, this could hurt your score. Instead, try to keep a balance of different types of debt.
  • Keep credit accounts open. If you have an old card you’re not using, don’t cancel it unless you need to. This goes back to the function of time. Reporting agencies like to see that you’ve responsibly held onto a line of credit for an extended period.

Like many aspects of personal finance, credit can be a double-edged sword. While it can help your ability to fund major purchases, it can be harmful if not managed properly. Understand what goes into your credit score and how to manage it. Make your credit work for you as an asset, not a liability.


1, 2 Weliver, D. (30 August 2016). How Credit Works: Understand The Credit Reporting System. Money Under 30. Retrieved April 13, 2017, from