personal finance

Focus on These 2 Things If You Want to Raise Your Credit Score


This story is part of CNBC Make It's One-Minute Money Hacks series, which provides easy, straightforward tips and tricks to help you understand your finances and take control of your money.

To raise your credit score, you first need to know the factors agencies consider when calculating it. For your FICO score, the score most commonly used by lenders, there are five main considerations.

Your FICO score is a value between 300 and 850. The higher the score, the more willing lenders are to loan you money for housing, cars, credit and more.

The average American has a credit score of 711, according to ValuePenguin. That's "good" as far as credit is concerned, but having a "very good" (between 740 and 799) or an "exceptional" (between 800 and 850) score will get you the best credit and loan offers.

Your FICO score is determined by five factors, which are weighted differently:

  • Payment history: 35%
  • Amount owed: 30% 
  • Length of history: 15%
  • New credit: 10%
  • Types of credit used: 10%

The most important factor is payment history, which means paying off your bills on time and in full every single month. Doing so over time will boost your score. But if you miss a payment or fall behind, your score will drop.

That said, while you want to pay off your entire bill to avoid accruing interest, making the minimum payment each month is enough for a completed payment on your credit report. If you can't afford your entire bill, make at least the minimum payment to remain in good standing.

The second most important factor is the amount you owe, or your credit utilization rate. That's how much of your total credit line you're using at any one time, and, ideally, you want to keep that low: Experts say to keep it below 30%.

If you have a credit card with a limit of $10,000, aim for a balance of no more than $3,000 at one time. Do this by limiting your spending, making payments throughout the month or asking for an increased limit.

The rest of your FICO score is based on how long you've had credit accounts open (the longer, the better); the last time you applied for a new credit card (if you apply for too many accounts in a short time span; your score will go down); and the variety of credit used. 

Maximizing all of these factors are important to having a high credit score, but prioritizing paying on time and in full will definitely give you the biggest boost.

Check out: Meet the middle-aged millennial: Homeowner, debt-burdened and turning 40

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