How To Improve Credit Score: The Ultimate Guide For 2023

We hear about credit scores constantly. In the media, when shopping for a home or car loan, in conversation with financial advisors, and even when applying for some jobs. Yet most of us aren’t exactly sure how our credit score is determined, or how to improve credit score numbers.

For such a nebulous figure, our credit scores can have an outsized impact on our quality of life. It can affect what interest rates we pay on mortgages and other loans, whether we qualify for a credit card, and sometimes even whether we get hired for a dream job.

In the guide below, you’ll learn how to take control of your financial future by optimizing your credit health. We’ll break down the factors that determine your credit score, share tips for how to improve your credit score and repair your bad credit history, and show you how to seize every possible point to boost your overall number.

You’ll also gain a greater understanding of how maintaining excellent credit can save you money and improve your quality of life, both now and in the future.

What is a Credit Score?

Credit scores are three-digit numbers used by credit reporting agencies to give a simple summary of your credit report. Lenders can quickly check your score to determine if you’re likely to pay on time or default on loans. It includes payment history, outstanding balances, delinquencies, hard inquiries, and more.

Instead of one credit score, most individuals have multiple numbers that reflect their creditworthiness. The two most popular models for determining credit scores are FICO and VantageScore (more on those later).

Along with these two, each of the three major credit reporting agencies (Experian, TransUnion, and Equifax) may come up with a slightly different number for each of these scores. This is due to disparities in how frequently they update the credit information in your file, and minor differences in scoring methodology.

Generally speaking, you don’t need to worry about keeping up with all the different numbers. Instead, keep an eye on how your FICO and VantageScore numbers change over time.

What Goes Into a Credit Report?

Though many credit bureaus collect consumer data and generate reports, most lenders rely on the ‘big three’: Equifax, Experian, and TransUnion. Credit reports are regularly updated with three categories of information from financial activities and details shared with businesses and banks. Those categories are credit history, credit inquiries, and collections information. More on each of these below.

Your credit history includes:

  • Summary of open and closed credit accounts: credit cards, mortgages, car loans
  • Length of existing accounts open
  • Utilization of available credit
  • Outstanding account balances
  • Payment history, including late or missed payments

Hard inquiries appear on your credit report when you apply for a loan or credit card. Typically, the lending agency obtains and reviews your full credit history with your consent.

In contrast, soft inquiries occur when you research what kind of interest rates you might qualify for. They can also occur when lenders access your information to send you an unsolicited preapproved credit offer. Hard inquiries stay on your credit report for two years, but they only impact your score for the first year.

This category includes publicly available data on any delinquent accounts or payments for which you may be responsible. This includes unpaid child support, bankruptcies, foreclosures, wage garnishment, liens, and civil lawsuits.

In addition to the financial information above, your credit report contains certain identifying information. This can include your name, mailing address, Social Security number, and birthdate. It does not contain your employment history, current occupation, salary, or other income data. Although, you may be asked to provide some of these data points when applying for a loan or credit card.

Obtaining Your Credit Report

The Fair Credit Reporting Act (FCRA) was passed by Congress in 1970. It ensures that every American can access a free copy of their credit report from each of the three largest credit reporting agencies once every 12 months.

To request your report, go to, call (877) 322-8228 or fill out an Annual Credit Report Request Form. Take the form and send it to:

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

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How Are Credit Scores Calculated?

Credit bureaus are constantly gathering billions of data points about U.S. consumers to compile individual credit reports. The vast majority of this information comes from financial institutions like banks, mortgage lenders, credit card companies, and other agencies.

These agencies regularly report information about their customers’ financial activity to the credit bureaus. This information includes your account balances and status, how much you have paid, and whether you have any late or missed payments in your record.

Scoring agencies like FICO and VantageScore assign values to aspects of your credit history and use this to calculate a three-digit score. These agencies look at five factors, including:

  • Credit utilization
  • Payment history
  • Average account age
  • New credit
  • Types of credit in use

They both have a scoring range from 300 to 850, but their calculations produce slightly different scores for the same person.

FICO and VantageScore have similar but slightly different methods to assign weights to credit scores based on the five factors mentioned above.

How FICO Develops A Credit Score

According to FICO’s website, the agency assigns the following weights to the various aspects of credit history:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • New credit applications: 10%
  • Credit mix: 10%

How VantageScore Develops A Credit Score

VantageScore considers its formula proprietary and doesn’t release specific percentages for each category. But, it does share which categories have the greatest impact on credit scores:

  • Total credit usage, balance, and available credit: Extremely influential
  • Credit mix and experience: Highly influential
  • Payment history: Moderately influential
  • Age of credit history: Less influential
  • New accounts: Less influential

FICO vs VantageScore: Which Is Dominant?

Historically, lenders have relied more heavily on FICO scores to evaluate credit applicants. But, in recent years, more financial institutions have added VantageScore data to their toolboxes. This serves to provide a more robust assessment of consumers’ credit histories and likely future financial behavior.

What Factors Impact Credit Score?

Above, I mentioned five factors that impact how your credit score is calculated. Those include credit utilization, payment history, average account age, new credit, and types of credit in use. Below, I will dive into each one, explaining how those factors come about and how they are derived.

Your payment history can significantly impact your credit score. Past payment behavior is a reliable indicator of whether you’ll make payments on time with a new loan. If you have more than one late payment in your credit history, you can expect it to diminish your score. Several missed payments can lead to the appearance of a derogatory mark on your credit report.

Not only does the number of late payments matter to your credit score, but also how late those payments were. Being 30 to 60 days late on a payment or two won’t impact your score nearly as much as a single payment that’s 90 or more days late. If missed payments get sent to collections or lead to loan defaults or foreclosures, it can cause lasting damage to your score that will take years to repair.

Making payments on time is one of the simplest ways to improve your credit score. If you struggle with staying on top of your due dates, consider enrolling in automatic bill payment services. Alternatively, you can set alerts to remind you to make your payments on time each month.

If a lack of available funds is the cause behind your late payments, a comprehensive review of your budget, financial obligations, and spending habits may be in order.

Credit utilization rate is sometimes referred to as the debt-to-limit ratio. It reflects the percentage of your available credit limit currently in use. For example, if your credit card limit is $5,000 and your current balance is $1,000, your utilization rate for that card is 20 percent.

Your credit score takes into account your utilization rate across all forms of credit. This is calculated by dividing the total balances on all credit cards by your total credit limit on all cards. High utilization rates indicate to potential lenders and credit issuers that you may be in over your head with your current financial obligations. As a result, you may not be able to reliably make payments on a new loan or credit card.

In general, the lower you can keep your credit utilization rate, the better. But, most financial advisors recommend maintaining a ratio below 30 percent.

A long credit history tends to be good for your credit score, as long as it includes a consistent record of on-time payments.

Credit reporting agencies look at a variety of data points related to this metric. This includes the age of your oldest and newest accounts, the average age of all accounts, and how recently you’ve used each account. For this reason, it can be better to keep an older account open, even if you rarely use it. This is especially true if your other credit accounts are significantly newer than your oldest account.

As long as the fees aren’t exorbitant or you can’t control your spending on your older cards, it’s smart to keep them open and use them for small purchases every once in a while. Closing accounts, especially older ones, shortens your credit history. It also reduces your total available credit, which could also negatively impact your utilization rate.

The number and type of open accounts on your credit report can affect your score for good or ill. Generally, having a high number of accounts benefits your credit score. It does this by indicating to potential lenders that other financial institutions have decided you’re a good credit risk and approved your applications for loans or credit cards.

Having a diverse mix of accounts can boost your credit score. These accounts may include:

  • Credit cards
  • Auto loans
  • Student loans
  • Home mortgages
  • Home equity lines of credit

Both revolving and installment loans should be included as well.

When your credit report is accessed by a financial institution, lender, insurance company, employer, landlord, or another party, the inquiry is recorded as either a “hard” or “soft” inquiry. Hard inquiries happen when you apply for credit or a loan and grant permission to access your credit report. These can take points off your credit score.

Soft inquiries typically occur when a potential employer, landlord, or other agency accesses your credit report with or without your permission. These appear on your credit history but do not affect your score.

A single hard inquiry won’t have a major impact on your credit score, though it can stay on your report for up to two years. Multiple hard inquiries in a short period of time may show lenders that you have applied for credit with multiple agencies and been rejected.

Research has also shown that individuals who open multiple new lines of credit in a compressed timeframe are more likely to make late payments or default on their loans altogether. As a result, a glut of hard inquiries on your credit report can cause your total credit score to plummet.

A Good Credit Score: What Is It?

Different lenders, credit card companies, and other businesses may all have differing standards for what they consider to be “good” or “excellent” credit scores worthy of qualifying for their approval. Of course, your goal should be to get your score as high as possible. This makes it more likely that you’ll be approved for the financial products you want and qualify for the lowest available interest rate.

Both FICO and VantageScore use a range of 300 to 850 to rate consumers’ creditworthiness. While the ranges for each rating segment may vary slightly, in general, the numbers below apply to both scales.

If your score is at the lower end of this range, you are unlikely to qualify for conventional loans or credit cards. And, if you are approved, your interest rates will almost certainly be extremely high.

If you’re trying to get a credit card with a score in this range, consider applying for a secured credit card. These cards are backed by a cash deposit. They can help you rebuild your credit score to eventually qualify for an unsecured card.

Your chances of being approved for loans or credit cards are slightly better in this range. However, you can still expect to pay high-interest rates or receive less-than-optimal terms.

You are likely to be approved for most credit cards and loans at a reasonable interest rate with a credit score between 670 and 739.

At a credit score between 740 and 799, you’re virtually guaranteed to be approved for any loan or line of credit you seek. This will also come with excellent terms and low interest rates.

At credit scores between 800 and 850, you will qualify for large loans and high credit limits at the lowest available interest rates.

What are the Benefits of a Good Credit Score?

Having a good credit score offers many benefits. You’re more likely to be approved for loans, mortgages, and credit cards with higher loan amounts, credit limits, lower interest rates, and favorable terms.

Good credit scores also lead to lower premiums on insurance policies and may give an advantage when renting a property in a competitive market. Even when signing up for cell phone service, a good credit score can get you better rates or device options.

How to Improve Credit Score Most Effectively?

With a solid understanding of the factors that determine your credit score and impact your credit history, you can be proactive in taking steps to achieve your peak score. Get started right away with the following habits:

  • Monitor your score and review your credit history on a regular basis
  • Make your payments on time
  • Optimize your credit utilization ratio
  • Open and close accounts with caution
  • Change up your credit mix

Monitor your score and review your credit history on a regular basis

Checking your credit score every few months helps you see whether it’s trending in a positive or negative direction. If necessary, make changes to get your credit score back on track.

You should also review your credit history several times a year to ensure that it doesn’t contain any errors. After doing this, you can take action to dispute any inaccuracies. Examples of these inaccuracies include:

  • Outdated information
  • Clerical errors
  • Mistaken or merged accounts
  • Identity theft
  • Incorrect criminal background checks

Make your payments on time

Payment history has an enormous impact on your credit score, with a weight of 30 to 40 percent of your total score. So, you should do everything possible to ensure that you make all of your payments on time and in full.

This rule applies to loans, credit card payments, utility bills, rent, cell phone, and cable service – anything that could be sent to collections if not paid on time. Set up automatic bill payments in your bank to stay on top of due dates. Alternatively, create reminders and alerts on your computer or mobile device.

Optimize your credit utilization ratio

If your credit utilization rate creeps above 30 percent, the steps below can help you get it back under control:

  • Make extra payments beyond the monthly required minimum to reduce credit card balances.
  • Once a card is paid in full, leave the account open to keep your total credit limit high. There is a caveat here. If the card has an extremely high annual fee that outweighs any benefit you would realize by maintaining the account.
  • Ask your credit card company to increase your limit on one or several of your cards, but don’t increase your spending to match the new limit.
  • Refinance high-interest loans or credit cards with lower-rate loans. Not only will you be able to pay off your debt more quickly, but you’ll also lower your debt-to-limit ratio in the process.

Open and close accounts with caution

Be judicious about opening new credit accounts or applying for new loans, since they generate hard inquiries that can ding your credit score for a year or more. Similarly, closing accounts that you don’t use may seem logical, but it can negatively affect your credit utilization rate and potentially lower the age of your credit history—both of which can lower your score.

Change up your credit mix

A diverse mix of credit is beneficial for your credit score, so consider adding different types of accounts—including revolving credit like credit cards and installment loans like mortgages and auto loans—to your financial toolbox. However, don’t open new accounts that you won’t be able to maintain since late payments will hurt your score more than a diverse credit mix will help it.

Looking for some additional resources? Check these out:

How Can I Fix a Bad Credit Score?

Even if you’ve made questionable financial choices in the past and find yourself digging out of a deep credit hole, it’s never too late to begin repairing your credit history.

Your first step is obtaining and carefully reviewing your credit report to see where the problem areas are and then making a plan to address these weak spots. The following actions will go a long way toward elevating a low credit score:

Make every payment on time

Payment history is responsible for roughly one-third of your credit score, so rehabilitating this aspect of your credit history will yield significant gains over time. Late payments generally fall off your credit report within seven years, but getting a year or two of consistent on-time payments under your belt can make you more desirable to lenders and credit issuers in the short term.

Avoid adding hard inquiries

Hard inquiries appear on your credit report for up to two years, and they can affect your score for as long as a year. If you don’t really need a new credit card or loan, resist the temptation to apply, or limit yourself to a single application every year or so.

Pay off any tax debt

If you fail to pay state or federal taxes, the government can place a lien on your property, which will show up as a negative mark on your credit report. Pay any tax debt you owe as soon as possible since these liens can remain on your report for years, and request a withdrawal once you’ve paid, which can remove the notice of lien from your credit history.

File for bankruptcy only as a very last resort

Filing for bankruptcy may sound like an easy solution to your financial woes, but personal bankruptcies can mar your credit report for as long as a decade.

Chapter 13 bankruptcy remains part of your credit history for seven years, while Chapter 7 bankruptcy takes 10 years to disappear from your report, and both can make it nearly impossible to secure credit or a loan as long as they show up in your history. Read up on the difference in this article.

If bankruptcy is already part of your credit history, consider getting a secured credit card to help you start rebuilding your credit right away.

Prevent foreclosures and repossessions

If possible, do everything in your power to avoid defaulting on a home or auto loan, since repossessions and foreclosures remain on your credit report for seven years after the fact. If foreclosures or repossessions are part of your past, making payments on time and reducing your overall debt can help counter the damage.

Address any errors or inaccuracies in your report

According to the Federal Trade Commission (FTC), one in five Americans has erroneous information on their credit report, and for roughly five percent of Americans, these inaccuracies could directly impact their credit score and ability to qualify for loans or credit. Commonly occurring errors include:

  • Errors in personally identifying information, such as the wrong name or contact information
  • Inclusion of accounts belonging to someone with the same or a similar name
  • Inaccuracies related to identity theft
  • Closed accounts still showing as open
  • Accounts showing you as the owner when you’re just an authorized user
  • Incorrect reporting of late payments or delinquent accounts
  • Incorrect account ages
  • Duplicate listings of a single loan, credit account, or hard inquiry
  • Incorrect account balances or credit limits

If you find any errors in your credit report, you should immediately dispute the error with both the credit reporting agency and the source that provided the incorrect information to the agency. You will need to provide supporting documentation to both parties.

Final Thoughts: How To Improve Credit Score for 2023

As you now know, solid credit history and a high credit score can profoundly improve your quality of life. Good credit empowers you to obtain your choice of home mortgages, auto loans, credit cards, and other financial products while qualifying for low-interest rates and favorable loan terms.

On the flip side, a poor credit score and damaged credit history can make it difficult—if not impossible—to achieve your financial goals.

Fortunately, your financial destiny rests squarely in your hands, no matter where your score currently falls in the 300-to-850 range. If you’re sitting on the low end, you can begin taking steps immediately to rebuild your flawed credit and add points to your score, and your credit report will reflect those positive actions in short order.

If your credit score is already pretty good, there are likely a few areas you can tweak to push your number a little higher, which can qualify you for better interest rates and take some of the stress out of future credit and loan applications.

Regardless of your present credit status, make it a habit to review your credit report and check your score several times per year to ensure your information is correct and your numbers are trending in the right direction.