What Makes Up A Credit Score (And How To Improve It)

Your credit score is a score depicting your financial health and your creditworthiness. When you’re looking to get a loan, the borrower considers one major factor before deciding to borrow you or not is your credit score. If you have a high credit score, you are more likely to get the loan, but if your credit score is low, then the probability of getting the loan is low too.

The credit score is calculated based on the person’s credit history, total debt level, repayment history, number of accounts opened, and many other factors. It is used as a measure to determine if the person will pay back their loan on time before deciding to borrow them.

A very strong measure of people’s financial health is their credit score. Lenders get a good view of how well they use their credit. With a high credit score, you’ll be open to very low interest rates. There are many other advantages to having a high credit score. So it’s essential to know how credit scores work and how to improve your credit score.

Credit Scores: How It Works

According to the FICO rating (which is the most popular method to calculate credit score), there are different ranges of credit scores. These are:

  • Poor: 300 – 579
  • Fair: 580 – 669
  • Good: 670 – 739
  • Very Good: 740 – 799
  • Excellent: 800 – 850

The range in which your credit score, after it is calculated, falls will determine if you’re able to borrow money and how much you can borrow. For instance, if your credit score is less than 640, you’re considered a subprime borrower, and the interest charged on subprime mortgages is usually higher than the conventional mortgages. This is done to compensate for the bigger risk that they’re taking to borrow your money. They are also likely to ask for a shorter repayment time. If your credit score is very low, then they might require a co-signer too.

On the other hand, if your credit score is higher than 700, then it’s considered to be very good. You’re more likely to get a borrower to give you a loan, and your interest rate will be lower as well.

The credit score of a person may also be used to determine how much they’re paying as an initial deposit when they’re obtaining a smartphone, renting an apartment, paying for utilities or cable services, etc.

How To Calculate Credit Scores

Experian, Transunion, and Equifax are the three main reporting agencies for credits in the US. They update, report, and keep the credit histories of customers. While each one may collect different information, the five significant factors used to evaluate a credit score are:

  • New credit
  • Types of credit
  • Length of credit history
  • Total amount owed
  • Payment history

The most important credit score factor here is the payment history which accounts for 35%, and it depends on how soon someone repays their loan. The total amount owed makes up 30%, and it’s the percentage of credit that the person currently uses (credit utilization). The third most important is the length of credit history, and this takes 15%. People with long credit histories are considered to be less risky due to the amount of data available to determine their payment history. Type of credit and new credit both take up 10%. Type of credit if their installment credit is mixed, such as mortgage loans or car loans, credit cards, and other revolving credit. However, new credit depends on the number of accounts the person had when they opened the last one.

How To Improve Your Credit Scores

There are many ways and many things that you do to improve your credit score. While some of these methods are popular, a major one under the radar is rent reporting.

The trend for many years about renting is how it negatively impacts the credit score. This is because evictions and late payment are often reported while timely rent payment isn’t reported. This is why it is essential to use a rent reporting service, especially if you’re a timely rent payer.

Reporting on-time rent payment can boost your credit score by as much as 40% if it reflects on your credit history. This is why it is so important to use the rent reporting service. What they do is report your rent payment to the credit bureaus so that it appears on your credit history. Once this happens (consistently), it will build your credit score massively.

Other things that you can do to boost your credit scores

  • Increase your credit line
  • Clear off your debts on time
  • Build a credit file at a bureau
  • Reduce your application for a new account


Building your credit score is very important as it can help you save costs in a lot of ways. With excellent credit scores, you’ll get low interest rates as well as many other benefits. You must keep your credit score strong and improve it if it’s low.

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