What drives your US credit score and how to raise it

Many clients ask about their credit score. In practice, it can influence approval for loans, cards and mortgages. Here is what drives your US credit score and how to raise it, offered as general education rather than individual advice.

What is a credit score?

Your credit score is a number that estimates your creditworthiness based on how you have handled debt. Three main agencies produce credit reports: Experian, Equifax and TransUnion. Scores may vary slightly between them, for example if a lender reports to only one. However, they generally reflect a similar history.

What drives your US credit score and how to raise it

FICO publishes these approximate weights; other models, such as VantageScore, may differ:

• Payment history (35%): above all, pay on time, since even one late payment may hurt.
• Amounts owed (30%): many guides suggest using under 30% of your limits; in practice, lower often helps more.
• Length of history (15%): longer histories generally help. In addition, FICO typically needs six months of activity to score you.
• Credit mix (10%): holding cards and loans can help; however, opening accounts just for mix may not be worthwhile.
• New credit (10%): a new account can reduce your overall utilization. Meanwhile, the hard inquiry may lower your score temporarily.

Practical steps to raise your score

Knowing what drives your US credit score and how to raise it helps only if you act on it. The steps below are common starting points. Your own situation may call for a different order.

• First, automate payments: set up autopay for at least the minimum due, so a busy month does not lead to a missed payment.
• Next, lower your balances: paying down revolving debt can reduce utilization. For instance, paying before the statement date may lower the balance your issuer reports.
• In addition, keep older accounts open: closing an old card reduces your available credit, which may raise your utilization.
• Finally, space out applications: several hard inquiries in a short period may weigh on your score, so apply only when you need credit.

How long improvement can take

Timelines differ from person to person. Scoring models look at reported balances, so lower balances may show up within a month or two. In contrast, the effect of a late payment usually fades gradually. Negative items can generally remain on your report for up to seven years. Therefore, patience and consistency tend to matter more than quick fixes. If you are rebuilding, checking your reports every few months can help you track progress.

Credit scores and mortgages

Scores range from 300 to 850. These bands are illustrative; lenders set their own cutoffs:

• 700 and above: good
• 650 to 699: fair
• Below 650: low

For example, mortgage minimums vary by loan type and lender. As a result, a higher score may help you qualify for better terms. Of course, income, debt and down payment also matter.

Common mistakes to avoid

Some habits can quietly hold a score back. For example, maxing out a card, even if you pay it in full, may raise your reported utilization. Missing a small bill that later goes to collections can also cause damage. Co-signing a loan is another risk, since the debt appears on your report and missed payments may affect you. Meanwhile, some companies promise to erase accurate negative information for a fee. However, accurate information generally stays on your report until its reporting period ends. Instead, you can dispute genuine errors directly with each agency at no cost.

Get your free credit report

You can get free reports from each agency through www.AnnualCreditReport.com. In addition, these reports usually do not include your score itself. Before a major purchase, such as a house, consider reviewing your credit a few months early. That gives you time to dispute errors and address problems. Finally, results vary, and no strategy guarantees a specific score.