A credit score is one of the most important numbers in a person’s financial life. It determines a lot about your ability to borrow and repay, and the interest rates you’ll pay on future borrowings. Building a good credit score, however, isn’t difficult.

The key is to be responsible with the loans you’ve taken on and repay them in a timely, organized fashion. Just by doing so, the credit score will improve and allow you to borrow further and under better conditions. In this article, we’ll explain how and which factors are the most important to consider.

Payment History: The Foundation of Every Score

Payment history is a cornerstone of a credit score, since it accounts for about 35 percent of how it’s calculated. More than anything else, lenders care about your ability to pay back the loans that you’ve taken, and if you pay on time, your credit score will grow.

Late payments, delinquencies, charge-offs, and bankruptcies can affect the credit score long after they actually happen, since they stay on your record for seven to ten years, depending on the policy. For those with an otherwise good credit score, a single late payment can reduce the score by 70 points.

One of the easiest ways to improve your payment history is to automate payments. If you have the funds needed to make the payment on time, you should automate it and forget about it. Never forget to pay the minimum amount on all of your loans, but try to pay more whenever you can.

Companies sometimes offer hardship programs for those who are temporarily unable to make the payments on time. Use those if you have the option, but only if you need to.

Credit Utilization: The Ratio That Quietly Controls Your Score

Credit utilization makes up to 30 percent of the credit score. However, it’s often seen as one of the least understood parts of the score. It refers to the percentage of the available credit you’re using. For instance, if you have a limit of $5,000 and you’re using $2,000, it’s a utilization of 40 percent.

High utilization signals to lenders that you’re financially stressed and have overstretched yourself with borrowing. This may not always be the case, but that’s how it’s seen. The credit bureaus can’t compare this fact with your savings or even your income.

Try to use less than 30 percent of your limit, and if possible, stay under 10 percent for a while. Pay mid-cycle rather than waiting on the due date. It will change how your loans are reported. Once you’ve paid off a few loans, you should try getting another card and increasing the limit on the ones you already use. That will, in effect, lower the utilization percentage without changing how you handle loans.

Length of Credit History: Why Time in the System Matters

The length of the credit history accounts for 15 percent of the overall credit score. For lenders, it’s proof that you can handle loan payments for months, if not years. It takes time to build a stable borrowing behavior.

The credit age includes:

• The age of your oldest account
• The average age of all accounts
• The age of your newest account

The simplest way to keep this part of the credit score in good standing is to avoid opening or closing accounts too often. Keep old accounts open as long as you can. If there are no fees involved, don’t close them at all. Opening new accounts will shorten your credit history, so don’t do it unless it’s necessary.

It also helps if you can become an authorized user on someone’s longstanding account. This is something parents often do for their children to help them build their credit score early.

 Credit Mix: Why Lenders Like Variety

Having a variety in your credit history also helps your credit score. It makes up ten percent of the score. The lenders use it to learn how the borrowers will work with different credit products. For instance, it helps to have one loan paid in installments and one revolving credit card. Both are repaid by sticking to a schedule and not going over your limit, but they are two very different products.

Don’t take out new loans just to add to their diversity. If you already have a few credit cards, consider taking a small credit-builder loan. These are easy to set up and usually offer lower interest rates than other financial products. Avoid juggling too many loans at once, as it can lead to other problems.

Having a mix of credit products won’t transform your credit score overnight. The point is to show you can repay them over time.

According to experts at CryptoManiaks, crypto credit cards are now commonly included in the mix of credit products one can take and repay to build their score. They work just as any other card, but the value of crypto fluctuates over time, so you may end up paying less in terms of value.

New Credit & Hard Inquiries: Small But Powerful Dips

The final major factor is taking on new credit. It makes up for 10 percent of the overall score. It includes recently opened credit lines, as well as hard inquiries for potential new credit lines. Multiple such inquiries show the creditors that you’re facing financial difficulties.

A single hard inquiry can drop the credit score by as much as ten points. Several inquiries in a short time can compound a much bigger loss. The best way to go, therefore, is to space out the inquiries to 3 to 6 months if you get rejected.

There are also pre-qualification tools that you could use to find out about your ability to take on loans, without having to damage your score, since those don’t require any work on the part of the lender. Only apply for new loans when you need to.

A 90-Day Blueprint to Raise Your Score

A meaningful change to your credit score could happen as quickly as within 90 days if you play your cards right. To do so, you need to deliberately borrow and repay loans in accordance with the rules we discussed.

• Lower your utilization by paying mid-cycle or by making multiple monthly payments.
• Set up autopay for all of your credit lines.
• Increase your limits to lower utilization, but do so only with soft inquiries.
• Don’t open any new accounts during this period unless you absolutely have to.
• Dispute negative credit score marks if you think they’ve been made by mistake. These are more common than you think.
• Become an authorized user on a family member’s account if they have a good credit score.
• Keep track of your score using free software tools.

To Sum Up

Credit scores have a life of their own and are affected by a bunch of small decisions users make. It’s a very important process that can affect the user’s ability to borrow in the future and lower their interest rates.

The main part is simply making payments on time, but you could also add new cards, use different financial products, and not apply for too many loans at once. It also helps not to max out your cards unless you really have to.