• Ethan Lang

How To Raise Your Credit Score

Updated: May 5

For one to improve their credit score, they must first understand how it is calculated. A credit score is calculated from 5 different factors: payment history, credit utilization, credit history, new credit, and types of credit.


Payment History


Being the largest factor, accounting for 35% of your score, payment history becomes very important towards improving a credit score. Payment history by definition is a record of monthly payment status on an individual’s credit report listed since the time the accounts were established. Some examples of these payments include water, electricity, and gas bills. This payment history is an indication to the lender on whether or not the individual is risky to lend to because of previous missed or late payments. To simply put it, the only way to change this factor of your credit score is to make payments on time and in full.



Credit Utilization

Secondly, credit utilization factors about 30% of an individual overall score. One’s credit utilization rate is calculated with this simple formula: (Total Balance/Total Limit).



To increase the credit score with this factor, one must lower their credit utilization rate. In order to do this, an individual must increase their total limit, coupled with lowering their total balance.



Length of Credit History


Although this factor takes a while to fix, it is in one’s best interest to get a credit card as soon as possible to start increasing their history length. Length of credit history accounts for 15% of one’s score. Because one must keep this card for an extended period of time, the best type of credit card to get is one without an annual fee. This enables one to keep it for a protracted amount of time without paying a fee for that duration.



New Credit


Even though new credit only contains 10% of one’s total score, it can lower one’s credit score very fast. Opening several new lines of credit in a short period of time can in turn lower one's credit score, which causes great risk for a person. The reason for this is because the lender knows that this individual has responsibilities to pay off other credits.



Types of Credit


The last 10% of one’s credit score is based on his or her types of credit. While not having many different types of credit might not lower one’s credit,  possessing them can significantly benefit a person’s credit score.


Some different types of credit consist of the following:

-Mortgage Loans

-Automobile Loans

-Additional Bank Credit Cards



Conclusion


When one desires to buy a new car or bigger house, an exceptional credit score will help one to get a loan accepted while also acquiring their loan at a better rate. It is hard to become wealthy in life without a great credit score because it allows an individual to leverage their money. By following these steps, one can increase their credit score, which will inevitably benefit their life as a whole.

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