When Do Credit Scores Increase?

Bad credit can mean missing out on the best interest rates and terms on your credit accounts. Your credit score is determined by five primary factors. Not all categories impact every consumer the same, but there are general rules that apply to the weight of each category. Understanding the impact of each category allows you to create a strategy that will build your credit score quickly.

Timely Payments

The largest category impacting your credit score is payment history. Payment history refers to the nature of your credit relationships. For example, whether your bills are paid on time each month and the number of accounts you have in collections, judgments or liens. Payment history makes up approximately 35 percent of your score. Avoid allowing debt to go into collections by making timely payments on all your accounts.

Credit Utilization

The second-largest category affecting your credit score is the amounts you owe. For creditors, your masses of debt mean you are a credit risk. Creditors reward customers who borrow responsibly, which means charging or borrowing an amount you can afford to repay in a short period of time. There are exceptions to this rule. For example, mortgage debt does not count negatively against your credit score. When using credit cards, keep the amount charged below 30 percent of your available credit to ensure your score increases each month. Carrying high balances on your card each month indicates that you do not borrow responsibly.

Consistent History

Avoid closing accounts when the balance reaches zero. Having an open account can help your credit score in two ways. The first way is by extending your credit history. The length of time you maintain a positive credit history helps to boost your credit score each month. You also benefit because your credit utilization ratio is lowered. Your credit utilization ratio refers to how much debt you have versus the amount of credit available. The lower your utilization ratio, the more your score increases.

Additional Factors

The smallest impacts on your credit score are the types of credit you own and new credit accounts. Mortgage debts, car loans and student loans are large debts that are not viewed as a liability on your credit as long as they remain in good standing. When you apply for these three types of credit, the credit inquiries have less of an influence than when you apply for other types of credit such as credit cards or personal loans. Avoid applying for new credit if you want your score to rise quickly. New credit scores cause your credit score to decrease.