Increasing your credit score can seem like a complex process, however, it isn’t as daunting as it seems. A good credit score is important to qualify for better interest rates on loans, mortgages, and even car insurance. This can help you save a significant amount of money over the years and unlock new financial opportunities for you. On the other hand, bad credit can mean high interest rates, difficulty renting an apartment, and even getting a job.  

If you’ve been feeling stuck with your credit score, we’ll break down the factors that might be holding you back! Keep reading on to learn how to improve it. 

What does a credit score mean?  

Your credit score is like a value for your financial behavior. It shows lenders how trustworthy and responsible you are with borrowed money. The higher the score, the more likely you’ll get approved for loans and lines of credit, often at the best interest rates available.  

Why is a good credit score important? 

A strong credit score is your key to financial freedom. When applying for loans, whether for a car, a house, or a business—lenders want to know: “Can I trust you to repay me?” Your credit score provides the answer.

It’s about more than just loans. A strong credit score can help you be eligible for lower interest rates, saving you thousands of dollars over time. It’s the difference between a manageable monthly payment and one that keeps you up at night. 

Even things you wouldn’t expect can be tied to your credit. Landlords often check it before approving you for a lease. Certain employers, particularly in finance, may consider your credit score when making hiring decisions—a credit score, though just three digits, significantly impact your life. A low score can limit opportunities, resulting in higher interest rates and denials. However, improving your score and taking charge of your financial future is never too late.

How is it calculated?  

Sometimes referred to as a FICO score, your credit score is calculated based on the information in your credit report – a detailed record that tracks how you’ve handled debt in the past. 

This report includes:  

1. Outline of your payments: your payment history, including details of whether you missed any deadlines 
2. Credit utilization: how much credit you typically use compared to your credit limits 
3. Credit variety: the types of credit accounts you hold and the length of time you’ve had them 
4. Inquiries for new credit: how often you apply for new lines of credit or loans 

This report is provided by three main bureaus: Equifax, Experian, and TransUnion. Each bureau may calculate your score slightly differently, so you might hear it called a ‘TransUnion, Equifax, or Experian score’.   

What makes a credit score good or bad?

Once you receive your score, you will see a number between 300 and 850. Generally, a higher score reflects better creditworthiness. Scores in the top tiers (typically above 670) have better interest rates. On the other hand, lower scores can make it harder to qualify for loans or result in less favorable terms.  

Here is an outline of a credit score classification range: 

Exceptional 800 and above 

Very Good 740 – 799 

Good 670 – 739 

Fair 580 – 669 

Very Poor 300 – 579 

How to Increase Your Credit Score 

Managing your credit score can sometimes feel tricky, and it’s easy to make mistakes without realizing it. Things like missing a payment or using too much of your available credit can have a bigger impact than you might think. Here’s a quick guide to some of the most common credit score mistakes and how to avoid them, so you can stay on top of your financial health. 

1. Pay Your Bills On Time: Missed payments are a major red flag for lenders. Even a single late payment on your credit cards, loans, or other bills can significantly lower your score.  
2. Don’t Open Too Many Accounts: Applying for new credit cards or loans frequently can trigger inquiries on your credit report. This is because lenders may view it as a sign that you’re seeking credit heavily and could be a risky borrower. 
3. Understand Your Credit Report: You can request a credit report from the previously mentioned credit score companies: Equifax, Experian, and TransUnion. This report gives you an idea of your credit usage, upcoming payments, and areas that need improvement.  
4. Look for mistakes: Once you scan your report, look for errors, such as on-time payments listed as late. This minor adjustment can raise your score.  
5. Aim for Low Credit Card Balances: Maintaining low balances on your credit cards is a great way to show creditors that you manage credit responsibly. Ideally, you should use less than 30% of your total available credit.
6. Avoid Defaulting on Accounts: Defaulting on your debts can have severe and long-lasting consequences. If you miss payments for a long time (usually 90 days or more), it can lead to default, which stays on your credit report and seriously damages your score. Beyond that, it can bring bigger problems like repossession, foreclosure, or even bankruptcy.

Disclaimer: The information provided in this article is for general informational purposes only and is not intended as legal, financial, or professional advice. Clarity Debt Resolution Inc. (“Clarity”) does not guarantee any specific outcomes, and results may vary based on individual circumstances. Clarity complies with all applicable laws, including the California Debt Settlement Services Act, and recommends consulting with an attorney or financial advisor before making any financial decisions. Clarity is not responsible for the accuracy of external links or content, and all website content is protected by copyright laws. We reserve the right to update or remove content at any time without notice.