Understanding Your Credit Score and How to Improve It

Your credit score plays an essential role in your life. Your credit score can even affect what apartments you rent, cars you buy and homes you qualify for! With such crucial effects, it’s essential to understand your credit score – and how you can improve it. Fortunately, the local experts at Porter Bank have the skills and knowledge to help you understand your credit score. 

4 Simple Factors That Can Affect Your Credit Score

First, what is a credit score? A credit score is a number that helps lenders understand your payments and financial history – essentially, your spending and repaying behaviors. These three credit bureaus calculate and track credit scores: Equifax, Experian and TransUnion. Your credit report is an in-the-moment review of your score provided by one (or all) of the bureaus. It shows your bill payment history, loans, current debt, bankruptcies, lawsuits, etc. Your score is calculated based on several factors, including the following. 

  • Payment history: One of the most significant factors affecting your credit score is your payment history. Lenders want to see that you pay all your bills on time monthly.
  • Outstanding and Committed balances: Outstanding balances tell lenders how much you are already extended, and Committed balances reflect the total amount you could extend.  High outstanding and committed balances can decrease your score, whereas a low outstanding balance improves it. 
  • Length of credit history: Credit history length is another factor influencing your credit score. This factor considers how long you have had open credit accounts. A year or more is ideal, with multiple years being best.
  • Types of credit accounts: Mortgages, car loans, credit cards and other types of credit accounts significantly affect your score. Having a variety of credit sources is called your credit mix. Credit mix shows lenders that you are reliable and have managed multiple accounts. 


6 Simple Steps to Improve Your Credit Score Today

With these factors in mind, here are some simple steps to increase your credit score.

  1. Make payments on time. A missed payment can negatively affect your score, causing a drop. Help yourself pay on time by budgeting your income, setting reminders and activating autopay on all credit accounts. 
  2. Don’t spend more than 30% of your limit. Although your credit limit may be very high, spending no more than 25-30% of that limit is essential. For example, if your credit limit on one card is $1,000, you should use no more than $250-300 monthly. 
  3. Pay more than the minimum on your balances whenever you can. You should always pay at least the minimum amount on your accounts. However, any remaining amount you don’t pay will accrue more interest. Pay the most possible on all your accounts each month to decrease interest payments and ensure your account balance remains low. 
  4. Don’t close accounts unless necessary. Your credit score is affected by the length of time your credit accounts have been open. If you have a card you rarely use, consider spending the minimum on it; that way, it remains active and increases your credit history length. 
  5. Open an additional account. A diverse credit mix can increase your score. If you only have one credit card or loan, consider applying for a small loan or another credit card. New credit lines increase your credit mix and credit limit, which can also improve your score.
  6. Check credit reports for errors and have them corrected immediately. You should regularly check your credit score and reports to catch and correct errors quickly. For example, if a lender reports a missed payment but you paid on time, you can have this corrected so that your score is accurate. Many free services let you check your credit score monthly without dropping your score, including the three credit bureaus. 


Get expert financial help from the team at Porter Bank. Our financial advisors can help you apply for loans and credit cards and are happy to help you plan for credit score increases. Contact us today to get started.