What one thing will improve your credit score the most?

Paying bills on time and paying down debt will keep your credit score high. See more debt pictures.
©iStockphoto.com/John Rodriguez

One number could stand between you and your dream house. It may seem unfair for one number to define you, but to many lenders, it does. Not only can that number determine whether you get a loan, it can dictate the exorbitant or reasonable interest rate attached to it. Insurance companies, landlords, employers and even utility companies routinely use the number to learn about you and your financial reliability.

Your credit score can dramatically affect your life, and, luckily, you hold the power to change it. Knowing how to improve your score has become an important skill in today's credit-dependent society. To learn how to improve it, we need to understand what it means and how it's calculated.


Your score is based on your debt history and your existing lines of credit. The companies you do business with report information about your account activity to credit reporting agencies, such as Experian, TransUnion and Equifax. The agencies gather your information and pull it together in a credit report. You are entitled by law to a free credit report once every 12 months. It's a good idea to take advantage of this opportunity, especially if you plan to apply for a mortgage soon. You can see it by going to AnnualCreditReport.com. With that report, the agencies calculate your FICO credit score, a three-digit number between 300 and 850 that is supposed to accurately assess and succinctly sum up your creditworthiness.

In the past, the agencies kept the method for determining credit scores secret, lest people try to manipulate their scores artificially [source: Curry]. Under pressure, however, they released the method they use to establish a credit score. Here's a list of the different factors and their weights, according to myFICO.com:

  • Payment history: 35 percent
  • Debt: 30 percent
  • How long you've had accounts: 15 percent
  • New accounts: 10 percent
  • Types of credit: 10 percent

For a fee, you can find out your credit score from the different reporting agencies. A score less than 620 might land you on a do-not-approve list, but a score greater than 760 could position you nicely for the best interest rates [source: Lankford, Weston,]. If you think your score might need a boost, there is one action you can take that will improve it the most. On the next page, we'll discuss what that is.


How to Raise Your Credit Score

Dozens of things can improve your credit score, but one thing helps more than anything else: always paying your bills on time. Because payment history makes up the biggest percentage of your score (35 percent), it makes sense that you should focus your attention on that factor.

If you are dismayed that this is not a quick fix, take heart: This strategy has short-term advantages. That's because your recent credit history actually carries more weight [source: Weston]. In other words, if you plan to ask for a loan in the next year, and you are late on a payment in the meantime, it will hurt your score more than a late payment from a few years ago [source: Sahadi].


In addition to paying your bills on time, you can bump up your score a few other ways. For instance, the amount of debt you have represents 30 percent of your score, so if you can pay down debt, you will give your number a significant boost. You also can try to lower the ratio of debt-to-credit limit. This means that you should keep your credit card balance below 25 percent of your credit limit [source: Lankford]. If you're worried about opening new accounts, ask your current credit card company to raise your limit. You also can keep the debt-to-credit ratio low by keeping old credit card accounts open, even if you aren't using them [source: Sahadi].

Keep in mind that reporting agencies make mistakes. Errors occur frequently, especially for the John Smiths out there or anyone else with a common name [source: Huddleston]. If you discover an error, you can dispute it and perhaps improve your score dramatically.

Late payments aren't the only thing that can drag your score down. Surprisingly, even unpaid parking tickets or library fines can lower it. Taking out new loans looks bad -- not only because it increases debt, but also you look desperate when too many lenders inquire into your score. However, if many lenders inquire within a short time (14 or 45 days, depending on the FICO formula used), the score counts this as one inquiry, as it's assumed you are shopping for a single loan [source: myFICO.com]. These are referred to as hard inquiries, and can only happen with your permission. Soft inquiries, on the other hand, such as looking into your own score do not affect the number.

Depending on your particular situation, there may be an even more effective way of improving your score. Understanding the process will help you make better decisions about your credit and help you to avoid costly credit counseling. Still have credit concerns? Visit the links on the next page.


Lots More Information

Related HowStuffWorks Articles

More Great Links


  • Curry, Pat. "How credit scores work, how a score is calculated." Bankrate.com. (Feb. 13, 2008) http://www.bankrate.com/brm/news/credit-scoring/20031104a1.asp
  • Huddleston, Cameron. "How to Fix a Credit Report Error." Kiplinger.com. (Feb. 13, 2008) http://www.kiplinger.com/basics/archives/2002/05/story15.html
  • Kim, Jane J. "Default Lines: The New Math of Credit Scores." The Wall Street Journal. Dec. 19, 2007. (Feb. 13, 2008) http://online.wsj.com/article/SB119802346920538029.html
  • Lankford, Kimberly. "Boost Your Score." Kiplinger.com (Feb. 13, 2008) http://www.kiplinger.com/magazine/archives/2006/03/credit.html
  • myFICO.com. "Credit inquiries." (Feb. 13, 2008). http://www.myfico.com/CreditEducation/CreditInquiries.aspx
  • myFICO.com. "What's in your FICO score." (Feb. 13, 2008) http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx
  • Sahadi, Jeanne. "Improve your credit score." CNNMoney. (Feb. 13, 2008) http://money.cnn.com/2002/02/15/debt/q_fivethings_creditscore/
  • Weston, Liz Pulliam. "Beef up your credit score in 5 steps." MSN money. (Feb 13, 2008) http://articles.moneycentral.msn.com/Banking/YourCreditRating/BeefUp YourCreditScoreIn5steps.aspx