How Your Credit Score is Calculated

How Your Credit Score is Calculated

How I Raised My Credit Score Over 100 Points (1)

My debt repayment journey started by checking my credit score. I quickly realized how bad my credit was and knew I had to improve it. I went from having a score of 640 to 749 in less than a year. It now nears 800.

There are a combination of things that resulted in raising my credit score. In case you weren't aware, your credit score is based on six things.

1. Credit Card Utilization
2. Payment History
3. Derogatory Remarks
4. Age of Credit History
5. Total Accounts
6. Credit Inquiries (Hard Credit Inquiries)

The first three have a high impact on your credit score and the last three have a medium to low impact on your credit score.

Credit Card Utilization

Ideally, you want your credit card utilization to be 30% or less. At the beginning of 2014 my Credit Card Utilization was at 66% (I know, I know, so bad). Towards the middle of the year, I started getting really serious about paying off my credit cards and started making big payments.

While I was busy making big payments, my credit card companies decided to increase my credit line. The combination of both, lowering my overall debt and increasing my credit line resulted in a big change to my credit card utilization rate which now stands at less than 10%.

A lot of folks will recommend calling and asking the credit card company's to increase your credit line or decrease your interest rate, that is perfectly fine.

However, I didn't have to do either, as I started making bigger payments they automatically raised my credit line. So if you are afraid of calling your credit card companies, you may not have to.

Also, keep in mind that a request for a credit limit increase will likely result in a hard check on your credit.

Payment History

There was a point in my life when I had to work two jobs and used credit cards just to make ends meet. Even then I always managed to cobble together the minimum payment on time.

Having a perfect Payment History makes a big difference. If you don't have a perfect payment history, start having one one. Mathematically speaking the more on time payments you have the less impact each late one has.

Derogatory Remarks

Again this was something that I didn't have a problem with. I was fortunate that even though I had high balances on my credit card I had kept my payment history perfect and derogatory remarks clean.

Age of Credit History

While I have a lengthy credit history, thanks to my parents co-signing a credit card when I was in high school (for emergency's only) my overall average is much lower.

This is in part thanks to a car loan I took out two years ago. Unfortunately, this is something that improves with time, so I have to be patient for this part of my score to improve.

Credit Inquiries

Here was another misstep of mine. The more hard credit line inquiries you have the lower you score on this part. However, it overall has a low impact on your credit score.

I currently have 5, due to a car loan and moving in the last two years. Moving involved various credit checks.

You should know that just pulling your credit score using your credit card company or tools like Credit Karma are not considered a hard credit check and will not count against you.

Paying Off my Credit Cards Made the Biggest Difference

So while a history of a few good habits (making payments on time and never defaulting) helped. The biggest impact on my credit score was paying down my credit cards.

At the beginning of the year I owed over $8,000 and now I'm nearly credit card debt free. I still have a bit left to pay off, but the changes in my credit score are a nice motivator to keep going.

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