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What improves your credit score



Consumers face a daunting task when it comes to understanding the complexities associated with credit scores. Three numbers, a million implications.

Credit scores essentially serve as the cover to your financial trustworthiness book. Scores are viewed by lenders and businesses to determine the likelihood that you will default on a loan payment or bills. Based on the findings, they decide whether or not to grant credit for valuable financial resources, such as credit cards and mortgages.

In essence, credit scores are simply a number that represents the information in your credit files. The complications associated with credit cards in conjunction with the consumer’s credit score can be simplified to one concept; every use of the credit card impacts the credit score, regardless of what is being purchased.

To better understand the elements of credit score impacts and how to improve poor credit scores, VantageScores produced a consumer resource with the concepts explained in layman’s terms. The paper discusses two primary concepts: credit files as they relate to the consumer’s credit scores, and how to improve your credit score.

Credit Files in Relation to Credit Scores

Don’t let the similarities in name confuse you, there is a huge difference between credit scores and credit files. Credit files contain information about credit activity, such as credit card, mortgage, and car payments, public records, and credit inquiries.

Three national credit reporting companies (CRCs) are responsible for maintaining credit files. Lenders typically report this information directly to some or all of the CRC’s on a monthly basis. When all of these credit files are compiled, it forms a credit report. These are viewable free of charge once a year from each CRC via

Credit scores are simply a three-digit number that is based on a mathematical interpretation of the information included in the consumer’s credit files. Perhaps the most important fact about credit scores is that they change frequently based on the activity of the consumer. In fact, approximately 70% of credit scores will change by up to 20 points in any given 90 day period.

This diagram illustrates the impact of certain credit actions that affect the overall score.

Improving Your Credit Score

Being declined loan that requires a credit score of 705 when your own score is 700 can prove frustrating to say the least. However, over the course of a few months, credit scores can be improved

by 10 to 15 points without too much trouble. Improvements 40 points or higher take disciplined actions over a longer period of time.

Certain actions will stay on record in your credit file over seven or more years. Foreclosures, late payments, collections, and public records are a few examples of issues that stay on file for seven years – whereas bigger defaults such as Chapter 7 Bankruptcy will stay on file even longer, up to 10 years. It is important to note that the more history a consumer has on record, the less impact negative history has on the overall score and vice-versa.

There are a few things to keep in mind about negative information on file:

  • As long as additional negative transactions are not added to the files, the overall impact will diminish every month.
  • Scores will experience the greatest drop the first month after the negative event takes place.
  • Each event has a lesser impact as time goes on and will eventually have no impact on the score whatsoever.
  • Bankruptcies and public records have the most significant impact on credit scores, resulting in the biggest drops that take the longest recovery time.
  • Maintaining responsible credit will improve and offset these events.

In select cases, it is possible to improve your credit score by 25-50% with a few simple changes. For example, credit scores are higher if the amount on credit cards is lower. Because of this fact, consumers can either spread out the balance on multiple credit cards, or pay off the total balance enough to reduce the amount of available credit used from 50% to 30%. This alone can improve the consumer’s score by as much as 50 points.

Paying off $25,000 on a mortgage can improve a score by 10-15 points depending on the current score of a consumer. Generally speaking, the score improvement is greater if the starting score is lower. VantagePoint’s paper on the subject lists several example scenarios of consumers who make adjustments to their credit activity to improve their score for further clarification of these concepts.

In the end, the slight fluctuations of a credit score are less important than paying attention to the information that contributes to that score and goes on file. The bottom line is this; consumers who responsibly manage their credit habits will never have to worry about a good score.

– Rebekah Rodgers,

Category: Credit

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