UPDATED: August 03, 2021

A credit score, which ranges from 300 to 850, determines your creditworthiness. It affects finances in more ways than you can imagine. It helps you get home loans, car loans, credit card loans, personal loans, and more. It also affects you when you’re looking for a job or a new apartment.

If you wish to have higher chances of securing approval for a new line of credit, you need to prove that you’re creditworthy through your credit score. Good credit helps you get loans with excellent terms while bad credit will make it difficult for you to get a loan with low-interest rates and flexible repayment plans. That’s why it’s crucial to improve your credit score and we will show how to do this a little later. But first, how do you know what your credit score is?

You can check your credit score by requesting a copy from the major credit bureaus (Experian, TransUnion, and Equifax). Under the law, you can get a free copy of your credit report from each credit reporting agency every 12 months. Your credit score is calculated using the FICO or VantageScore credit scoring models.

Here’s a table for a quick comparison:

Difference Between FICO Scores and VantageScores

What are the Factors that Affect Your Credit Score?

There are five factors that affect your credit score, and knowing what these are and how to manage them can make all the difference in improving your credit score. 

  • Payment History
  • Amounts Owed
  • Credit History Length
  • Credit Mix
  • New Credit

Below you’ll find tips on how you can improve your credit score through these factors.

How Can You Improve Your Credit Score?

If your credit score right now isn’t what you want it to be, you’re not alone. There are many consumers who are struggling with poor credit scores. Fortunately, there are ways to improve credit and achieve a perfect credit score.

1. Always Pay Your Bills on Time

This includes your utility bills, phone bills, internet, student loans, auto loans, home loans, credit card loans, and all the other loans you may have. Regular and timely payments can help improve your credit score. 

Keep in mind that your payment history accounts for 35% of your credit score. When you apply for a loan, lenders have one question in mind and that is “can you pay the loan back on time?” To answer that question, creditors check your payment history. It’ll be to your benefit if you make timely and full payments on the amount due. 

Your payment history reflects several items such as:

  • Timely payments
  • Late payments (30, 60, or 90+ days past due)
  • Number of accounts sent to collections
  • Items of public record, such as debt settlements, charge offs, foreclosures, bankruptcies, liens, public judgments, or lawsuits

2. Keep Your Credit Card Balances Low

The amounts you owed are reflected by your credit utilization ratio. It’s a percentage that reflects how much of your credit limit is used and it accounts for 30% of your credit score. It’s calculated by dividing the amount you owe by your total credit limit. Experts suggest using less than 30% of your available credit to maintain a good credit score. You must also pay off your debt, don’t max out your credit cards, and use credit only when necessary to avoid having debt problems.

3. Keep Unused Credit Cards Open

Don’t close your old credit accounts, especially if you have a favorable payment history on those accounts. How long you’ve been using credit is also a factor when calculating your credit score. The credit history length makes up for 15% of your credit score. It includes the age of your newest and oldest credit account as well as the average age of all your credit accounts. Having a long credit history can be helpful provided that it’s not filled with late payments, defaults, and other negative items that will drag down your credit score. Short credit history will also work in your favor as long as you always make timely payments and your credit utilization ratio is within the acceptable range of less than 30%.

4. Monitor Your Credit Report so that You’ll Know Your Credit Standing

In doing so, you’ll determine what’s dragging your credit score down and what you can do to improve it. Request a copy of your credit report from the three major credit reporting companies or through AnnualCreditReport.com.  Remember you are entitled to 1 free copy every 12 months.

5. Dispute Any Errors You Find on Your Credit Report

Incorrect items or information on your credit report can lead to a lower credit score. You need to file a dispute right away if you find inaccuracies in your credit report.

6. Apply Only for New Credit if Necessary

Bear in mind that applying for a loan or new credit triggers a hard inquiry, which could lower your credit score. New credit accounts for the final 10% of your credit score. It includes the number of new credit accounts you have and how many hard inquiries were made into your credit report. Keep in mind that applying for a new loan will trigger a hard inquiry, which may lower your credit score by 5 points or less. Imagine how much will be deducted from your score if you made several loan applications in a small amount of time.

Take note that your credit mix or the types of credit you have account for 10% of your credit score. Do you have home loans, credit card loans, car loans, student loans, or any other types of loans? The credit scoring models will factor in how many of each loan you have and how well you manage your loans. In general, it’s good to have a mix of credit lines.

What is a Good and Bad Credit Score?

The answer to this question depends on what kind of credit scoring model is used, FICO or VantageScore. A good FICO score ranges between 670 and 739. Meanwhile, a good range for VantageScore is from 661 to 780. A bad or “poor” FICO score ranges from 580 to 669 while a poor VantageScore ranges from 600 to 600.

What are the Pros of Having a Good Credit Score?

A good credit score has a lot of benefits to your financial life. Here are some of them:

  • Low-Interest Rate. A good credit score lets you get low-interest rates on different types of loans. By paying less on your interest rates, you can repay your debt more quickly.
  • Higher Loan Approval Rate. Borrowers with good credit scores have higher chances of getting approved for a loan.
  • More Negotiating Power. You can use your good credit score to negotiate better interest rates and terms on approved loans.
  • Higher Credit Limit. Creditors prefer borrowers with good credit scores. They will consider you as low risk and may offer higher credit limits.
  • Easier Apartment Hunting. Many landlords factor in credit scores when evaluating potential tenants. A good credit score will help you get into an apartment or a rental home easily without the common hurdles faced by those who have bad credit scores, such as high-security deposits and higher advance rental payments.
  • Save Money on Utilities. You can save on the installation of utilities in your home if you have a good credit score. In most cases, you won’t be required to pay a security deposit, which is a big help, especially when you’re trying to find ways to cut costs.

What are the Cons of Having a Bad Credit Score?

If good credit has positive effects on your financial life, a bad credit score will also have negative repercussions.

  • High-Interest rates. Creditors will consider you as a high-risk borrower if you have a bad credit score. If you get approved for a loan, you’ll have to pay higher interest rates than those with good credit scores.
  • Lower Chances of Getting Loan Approval. A bad credit score will lower your chances of getting approved for a loan. That’s because lenders will check your credit score and your credit history. They prefer applicants with good credit scores. Although there are lenders who offer bad credit loans, you’ll have to pay higher interest rates.
  • Difficulty in Finding An Apartment. If you’re looking for a new apartment rental, you may find it harder to secure a tenancy approval if you have a bad credit score. Some landlords or property managers may look past your less-than-stellar credit history, but in return, they may ask you to pay higher security deposits and rental payments for a few months in advance.
  • Higher Insurance Premiums. Insurance firms evaluate your risk by checking your credit report. In most cases, a good credit score means lower insurance premiums while a bad credit score means higher insurance premiums.
  • Higher Deposits for Utilities. Utility companies also check credit scores. If you need utilities, such as water and electricity, you may be required to pay higher deposits if you have a bad credit score.

How Long Does it Take to Rebuild Your Credit Score?

There’s no magic step to rebuild your credit score and that means you can’t expect to see positive changes to your credit score overnight. You need time, especially if you have several negative items in your credit file.

It also depends on the kind of negative information on your credit report. For instance, delinquencies will stay on your credit report for 7 years while bankruptcies and other public records remain on your report for 7-10 years.

Unfortunately, there’s no way to remove a bankruptcy from your credit report if it’s legitimate unless you spotted inaccuracies or errors related to it such as incorrect addresses and spelling mistakes.

There are no shortcuts when you’re trying to rebuild your credit score. You have to be patient and develop good borrowing habits to see long-term improvements in your credit score.

Can You Raise Your Credit Score Overnight?

Many consumers want to know how to increase credit scores quickly. There are many ways to improve your credit score, but there’s no guaranteed or specific timeline for you to raise your credit score by a certain number of points. It all depends on your credit habits.

You may be tempted to use the services of a credit repair company that offers a quick fix for a certain fee. Always remember that a negative item can only be removed if it has reached its statute of limitations or if it’s incorrect. If the item is accurate, there’s no way to remove it even if you pay a credit repair company. 

Rather than seeking help from a third-party company, it’s better to fix your credit yourself by becoming a responsible borrower and practicing healthy spending habits. Here are some tips to help you rebuild your credit.

1. Removing Negative Items

You’re probably wondering how to remove negative items from your credit report. You have several options including submitting a dispute, offering a pay-for-delete deal with the collection agencies, or requesting a goodwill deletion. Check out this article for an in-depth explanation about removing negative items.

2. Getting a Tradeline

A tradeline is a record of your borrowing activities, which are reported to the major credit bureaus. Having a positive tradeline helps build your credit. There are many ways to get a positive tradeline including becoming an authorized user on a friend or family member’s credit card.

3. Remove Closed Accounts

A closed account stays in your credit report for up to 10 years. An account that’s closed due to delinquency will have a negative effect on your credit score. You can’t remove a closed account from your credit report unless there are inaccuracies, the creditor agrees to a goodwill deletion, or you can wait for it to drop off from your credit report.

4. Remove Tax Liens

Tax liens are claims filed by the IRS against your assets when you fail to pay your taxes. In the past, unpaid tax liens showed up on credit reports for 10 years while the paid ones remained on record for 7 years. Since 2018, credit reporting agencies no longer include tax liens on credit reports. You must file a dispute to have it removed if you still see one on your credit report.

5. Remove Late Payments

Late payments can decrease your credit score by 5 to 100 points. These negative marks remain on your record for 7 years. In some cases, you can remove late payments from your credit report. You can file a dispute if the late payment record is incorrect or if the lender agrees to a goodwill deletion.

6. Remove Settled Accounts

Settled accounts stay on your credit report for up to 7.5 years from the date it was closed or fully paid or 7 years from the original delinquency date. You can file a dispute with the credit bureaus if the settled accounts still appear on your credit report even if they’re already past the 7-year limitation or ask your creditor for a goodwill deletion.


Having a good credit score offers several benefits, such as lower interest rates, higher chances of securing approval, and easier apartment hunting. But life happens and there are times when you’re unable to settle your bills on time, which could drag your credit score down. Fortunately, there are things you can do to improve your credit score. Pay your bills on time, pay off your debt, keep your card utilization low, and apply for new credit only when needed. There’s no quick fix for a bad credit score. It will take time to see positive changes. The most effective way to improve it is to develop good borrowing habits and be well organized in your financial matters.