Credit Scores: What They Are And How To Improve Them

Tawnya Schultz | Aug 13, 2019
person paying with credit card

Do you know your credit score? With all of the free credit score apps or instant access from almost any bank, it’s easier than ever to stay on top of your magic number. But what actually is a credit score? And, why is it important? You probably know that it plays a vital role when applying for loans, opening utilities, renting an apartment, or even passing background screenings, but have you ever wondered what you can do to improve it?

Here’s a breakdown of everything you need to know about credit scores, and tips for leveraging your number to work in your favor.

What Exactly Is A Credit Score?

A credit score is a number that banks and other institutions use to determine how reliable you are with credit. There are many factors that determine your score, but overall, this number and the data it represents is an easy way for banks to understand if you can afford something and whether or not you are responsible when it comes to paying your bills on time. Generally, the higher your score, the easier it is to get access to lower interest rates, special financial products, and more.

Your credit score can be accessed for just about everything, even during background checks for some jobs. The highest score you can achieve from most reporting agencies is 850, but generally, anything above 700 is considered very good.

FICO is the primary data reporting agency that delivers this number to institutions. This outside agency uses a combination of data to ascertain a number which is then distributed to banks so they can easily determine if they should permit you to open an account or borrow money with them. It also helps determine the amount you’ll be allowed to borrow—and, the higher your score, the lower your interest rate.

There are three credit reporting agencies: Equifax, TransUnion, and Experian. They generally receive the same information about your credit history which includes any late payments you’ve made and outstanding balances on your accounts. You can request a copy of your credit reports for free by visiting

You’re allotted one free report from each agency per year, so it’s recommended that you space them out every four months. If something doesn’t appear correct on your report (e.g. an account isn’t closed that’s supposed to be, or an account is listed that you didn’t open), you can request to have certain items removed. Reviewing your report several times a year will also help you stay on top of identity theft and fraud since you can see every account that’s currently open in your name. Websites like and offer access to your score and are completely free to use.

How Your Credit Score Is Calculated

There are many factors that determine your score. Payment history, credit age, credit usage, number of accounts, derogatory marks, and hard inquiries all come into play. Here’s how it works:

1. Making Payments On-Time - 35%

Not missing a payment and ensuring that every bill is paid on time comprises a major percentage of your score. Set up recurring payments and track your spending with a budget to avoid missing any. A few days late won’t necessarily affect your score, but after 30 days, businesses have the right to report you for paying late.

2. Debt Usage - 30%

The amount of debt you owe, compared to the amount of credit you have available to you, is known as debt usage. This means that if you max out a credit card, or owe close to how much total credit is available, your score will be negatively impacted. A general rule of thumb is to keep your ratio at 25% or less. For example, if you have a credit limit of $10,000, only use up to $2,500 of it at any time.

3. Credit Age - 15%

The number of years for which you’ve had accounts open counts for 15% of your score. Basically, you’re rewarded for having accounts open for long periods of time. Anything over seven years is considered good and will help raise your number.

4. Mix Of Accounts - 10%

The types of accounts you have open including student, personal, and home loans as well as credit cards make up 10% of your score. Having a variety of accounts indicates that you’ve been responsible with different types of credit, although this isn’t weighted as heavily as other factors.

5. Credit Inquiries - 10%

Inquiries are considered hard pulls by banks and companies. These tend to occur when you’re trying to open new accounts. Getting a new cell phone, opening a utility bill, applying for an apartment, or even trying to get approved for a new credit card or loan, will show as hard inquiries. These remain on your record for several years, so make sure you don’t open too many accounts at one time.

How To Improve Your Credit Score

Pay Down Debt

The best thing you can do to raise your score is to pay down your card balances. Since debt usage counts for 30% of your score, the faster you pay bigger debts off and get below that 25–30% debt-to-credit ratio, the faster you’ll see your score improve. Your score can jump by 20 to 40 points in a matter of months by getting focused, getting on a budget, and making meaningful dents to your debt.

Always Make Payments On Time

It may seem obvious, but keeping all accounts current will always bump up your score. If you are going to be late or miss a payment for any reason, call the company and let them know. If you’ve never been late, they’ll usually work with you.

Don’t Open Too Many Accounts At Once

Opening several accounts within a short period of time will count against your score. Consider paying down all of your current cards instead of opening new ones. Also, it's important to not close your accounts, even if you aren’t using them anymore, so you don't lose your payment history.

Where To Start

Check your score today by creating an account on or your preferred site. You’ll be alerted of any new activity on your account as well as when updated scores are available. Keeping an eye on your credit will save you money in the long run, and more importantly, protect your financial security.


The information and content provided herein is for informational purposes only, and it is not to be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Any testimonials, opinions, advice, product or service offers, or other information or content made available here by third parties are solely those of their respective providers and not of Ethos which does not guarantee the accuracy, completeness, reliability or usefulness of such. You should consult with an attorney or other professional to determine what may be best for your individual needs. Ethos is not a fiduciary and does not make any guarantee, warranty, or other promise as to any results that may be obtained from using our content. To the maximum extent permitted by law, Ethos disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.