It is no secret that your credit score plays a major role in the interest rates that you are offered on loans and mortgages. But many people are unaware there are several other ways that their credit score may affect their lives.

  • For example, you may be surprised to learn that car insurance rates are often influenced by credit scores.
  • Want to purchase a new phone at your cell carrier on payments? They’re most likely going to check your credit first.
  • And while they can’t necessarily see your credit score, employers can access a modified version of your credit report, known as an “employment screening.”

The bottom line: your credit score is important and making a plan to build a high score is a wise financial move.

What is the Highest Credit Score?

With both VantageScore and FICO, the lowest credit score is 300 and the highest score is 850.

However, don’t be surprised if you check your credit score and you don’t have an 850. Very few people do. Thankfully, you don’t have to have an 850 to get the best offers on mortgages, personal loans, and credit cards.

  • Getting your score into the 700s (considered in the “Good” credit range), will earn you some very attractive interest rate offers.
  • Getting your score above 760 (in the “Excellent” range), should get you access to some of the very best rates on the market.

To get your score into either of those ranges, it’s critical to understand how credit scores are calculated in the first place. That’s what we’ll discuss below.

How are Credit Scores Calculated?

The most popular credit scoring company with lenders is FICO and VantageScore is close behind in second place.

In order to create your credit score, FICO and VantageScore both use the information found in your credit reports from the three major credit bureaus – Equifax, Experian, and TransUnion.

It’s important to understand that the idea of one, universal credit score is a bit of a misnomer.

  • FICO and VantageScore use different models to determine your credit score.
  • Your credit score with one company will be almost always be different than the other. They should be in the same ballpark, but will likely never be exactly the same.

To make things even more complicated, you can even have different FICO scores! How could that be?

Because some lenders don’t report to all 3 credit agencies. This could result, for instance, in your Equifax report being slightly different than your Experian report. In this case, these discrepancies could cause your Equifax FICO score to be a bit higher or lower than your Experian or TransUnion FICO score.

How Your Credit Report Becomes Your Credit Score

Once FICO or VantageScore have the information from your credit reports, they run the data through credit scoring algorithms.

While FICO will never publicly release the specifics of their algorithm, they do say which 5 factors influence your score. They even go as far as to reveal which factors influence your score more than others, by assigning each factor a percentage:

  • Payment History: 35%
  • Amounts Owed: 30%
  • Length of Credit History: 15%
  • New Credit: 10%
  • Credit Mix: 10%

Below, you’ll see the 6 credit score factors that influence your VantageScore. VantageScore  chooses not to assign specific percentages to each factor, but instead orders each factor by its level of “influence,” ranging from extremely influential to less influential.

Extremely influential

  • Payment History

Highly influential

  • Age and type of credit
  • Percentage of credit limit used

Moderately influential

  • Total balances/debt

Less influential

  • Recent credit behavior and inquiries
  • Available credit

Striving for an “A” in Each Credit Scoring Factor

In a school setting, your overall Grade Point Average (GPA) is simply the average of all the individual grades that you receive from each class.

  • In a similar way, your overall credit score is a composite of how well you fare in each of the factors listed above.
  • If you have an “A” in three factors, but an “F” in two others, then these latter two factors are the ones that you’ll need to focus on in order to raise your score.

Some people think that getting a high credit score is just an exercise in patience – wait long enough and your credit score will inevitably rise. But it’s important to understand that some of the things that may be hindering you from having a high score won’t just fix themselves over time.

For instance, let’s take someone who has an “A” in “Payment History,” but an “F” in “Credit Utilization Rate.”

  • Going back to our GPA analogy, another 10 “A’s” in Geography isn’t going to dramatically raise your GPA if you keep getting “F’s” in Algebra.
  • In the same way, another year’s worth of on-time payments may not make a huge impact in your score if payment history wasn’t the factor that was bogging down your score in the first place.

If you want to get your credit score into the high 700’s or even the 800’s, you’re going to need to pay attention to each factor that influences your score.

Below, we’ll show you how to get an “A” in each factor, using FICO’s 5 factors for sake of simplicity.

1. Payment History – 35% of overall score

Despite all the tips and tricks that we will discuss below to improve your credit score, no factor is more important to your overall score than your payment history.

Weighted at 35% of your total score, making regular on-time payments is like acing a big final exam at school – it doesn’t guarantee you a great overall grade, but it sure helps a lot. And in similar manner, if you are flunking in the payment history category, focusing on all the smaller factors is a bit of an exercise in futility.

If you struggle with remembering to make your monthly credit card payments, then setting up “Autopay” may be helpful for you. Knowing how forgetful I can be, the first thing I do when I receive a new credit card is to set up automatic payments.

  • Not only has this helped me avoid late payments and penalties, but it also gives me a general peace of mind throughout the month.
  • You’d be surprised how much stress is relieved in your life when you don’t constantly have bill due dates swimming through your head.

But What If I’ve Already Missed Payments?

If you’ve missed a payment in the past, don’t panic. As long as you keep making on-time payments each and every month, that one late payment will have less and less of an effect on your score over time.

And late payments fall of credit reports completely in 7 years.

What About Errors On My Credit Report?

If you check your credit report and find that there are illegitimate negative marks, you can dispute them. Credit bureaus are required by law to investigate any disputes and to fix legitimate errors in a timely fashion.

To read more about the rules and regulations governing credit reporting errors and to file your dispute, visit Disputing Errors on Credit Reports on the FTC’s website.

If you’ve never checked your credit report before, you are entitled to a free credit report from all 3 bureaus every 12 months. Visit to request your free credit reports.

2. Amounts Owed (Credit Utilization Rate) – 30% of Overall Score

Your credit utilization rate is the second-most influential factor to your credit score. But despite its importance, if you ask the average consumer what their credit utilization rate is, you’ll probably be met with a deer-in-the-headlights look.

In simple terms, your credit utilization rate is simply how much outstanding debt you have compared to your overall credit limit.

To calculate your credit utilization rate, begin by adding up the credit limits of every credit card that you own, as in the example shown below:

Credit Card #1: $500 credit limit

Credit Card #2: $2,000 credit limit

Credit Card #3: $3,000 credit limit

Credit Card #4: $4,500 credit limit

Total Available Credit: $10,000

Then, simply divide all of your outstanding debt by your overall available credit. Using the example above, let’s say someone having $10,000 of available credit, has $2,500 of total outstanding debt.

Simply follow the simple math problem below to determine the credit utilization rate.

Outstanding Debt/Total Available Credit = Credit Utilization Rate

$2,500/$10,000 = .25 (25% Credit Utilization Rate)

If you have a high credit utilization rate, getting it below 30% could have a dramatic positive impact on your score. However, if you want to get your score into the stratosphere or even shoot for a perfect score, you’re probably going to want to keep your credit utilization rate between 10-20%.

Why Getting a New Credit Card Could Actually Raise Your Score

Throughout the years, I have often let my friends know about opportunities to score big on credit card points due to rewards bonuses that were being offered at the time.

  • Many times, to my surprise, my friends wouldn’t seem to share my enthusiasm.
  • Instead, they would look at me with concerned looks on their faces, and would ask, “But won’t signing up for a new credit card hurt my credit score?”

Before I explain why this idea is 90% myth, I should first make it clear that this idea does have a grain of truth.

  • Signing up for a new credit will ding your credit score…at least temporarily.
  • As we will discuss later, whenever a hard inquiry shows up on your credit report, it will drop your score a few points.

But remember, hard credit inquiries only account for 10% of your total score, whereas your credit utilization rate is 3 times as influential, at 30%.

When you understand this, it’s easy to see how adding a new line of credit could actually significantly raise your score over the long-term.

Consider this: if you only have one credit card with a $500 credit limit and you spend $250 a month on that card, your credit utilization rate would be sitting at 50% (250/500) – not great.

But then let’s say that you applied for a new credit card with a $3,000 credit limit. In the short term, your score would drop a few points (usually less than 5). But if you continued to only spend $250 a month in credit card debt, check out what your new credit utilization rate would be.

$250/$3,500 = .07 (7% credit utilization rate)

That’s a huge drop! By just adding one credit card and keeping your spending habits exactly the same, you would have dropped your credit utilization rate from 50% to 7%.

Why Canceling a Credit Card Can Hurt Your Score

This same principle works in the opposite direction as well. Canceling a card with a large credit limit could cause your credit utilization rate to rise dramatically even without any increase in your spending.

Again, this may seem a bit confusing because many people think that canceling a credit card is an indication of more financial discipline and maturity. But in the crazy world of credit scores canceling a credit card will usually hurt your score.

This is why, as a general rule, you should never cancel a card within 6 months of applying for a mortgage or personal loan.

However, if don’t have a mortgage application in your near future and you have a card that you want to cancel before your annual fee hits, you can minimize the negative impact by applying for a new card beforehand.

  • It’s important that you sign up for the new card BEFORE canceling the old card.
  • Otherwise the credit score hit from canceling the first card could keep you from qualifying for the new one!

3. Length of Credit History – 15% of Overall Score

In the world of credit, the older the credit the better.

Why? Because the longer someone’s credit history the more data a lender can analyze to determine how responsibly they handle debt.

When you cancel a credit card, not only will it affect your credit utilization rate, but it will also eventually affect your length of credit history.

I say, eventually, because the credit bureaus remove accounts in good standing from your credit report after 10 years have elapsed, and remove delinquent accounts after 7 years.

Cards With Annual Fees – Should You Cancel or Keep Them?

I am not a fan of annual fees on my credit cards, so I would definitely fall in the “cancel” camp. Since I know I have other “no-fee” cards that have been opened for a long time, I don’t give a second thought to giving an annual fee card the boot at my card anniversary date.

However, if you are someone who is worried about the negative effect that canceling a particular card could have on your overall credit history length, here is a trick that may work for you.

  • Try calling up the credit card company and requesting to downgrade to the no-fee version of the rewards card.
  • This way you get to keep the credit history from the account while avoiding having to pay the annual fee.

The one situation where your length of credit history could become a major issue would be if you canceled all of your credit accounts and never reopened any new ones. In this case, after 10 years, all of your previous accounts will have fallen off of your credit report and you could find yourself with no credit score whatsoever.

Card With No Annual Fees – Should You Cancel or Keep Them?

In general, if you have a credit card with no annual fee I would recommend keeping the account active.

  • If you don’t plan to use it anymore, just put it away in a drawer.
  • You may also want to set a reminder to use the card every 6 months for gas or some other small purchase to keep the credit card company from marking the card as inactive and canceling it themselves.

4. New Credit (Hard Inquiries) – 10% of Overall Score

As mentioned earlier, whenever you apply for credit, your credit score will typically drop a few points. This is because applying for more credit could be the first sign that a consumer is facing some sort of financial trouble that requires more debt to handle.

However, this is usually a very temporary hit as long as your credit utilization rate doesn’t go through the roof after the hard inquiry.

It’s also important to note that checking your credit score (known in the credit industry as a “soft inquiry”) has no negative effect on your score.

5. Credit Mix – 10% of Overall Score

Your “credit mix” is simply how many different types of credit show up on your credit report. Thre three main types of credit would be:

  • Credit cards
  • Installment loans (car loans, personal loans, student loans, etc)
  • Mortgages

As a rule, lenders like to see all three types of accounts on a credit report. Why would this matter?

  • Because even if someone only spends $100 each month out of their $2,000 credit card limit, this doesn’t necessarily mean that they will be able to consistently make a $800 mortgage payment.
  • This is why looking at a credit report with a good mix of credit tends to make lenders feel more comfortable

Does this mean that you should go apply for a personal loan or a car loan just so you can have more variety in your credit mix? No!

Again, this (along with hard inquiries) is the factor that has the least effect on your score. It’s good to know what it means; but at the end of the day, your credit mix (or lack thereof) shouldn’t be keeping you up at night.


In this guide we explained how credit scores are calculated and the steps that you can take to improve your score. By putting what you’ve learned into practice, you can build a high, and maybe even perfect, score someday.

What’s the highest score you’ve ever achieved? Are you one of the few who has reached the perfect 850? If so, be sure to connect with us on social media and tell us how you did it!