Editorial Note: IntuitCredit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.
Advertiser Disclosure
We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.
Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.
Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.
VantageScore and FICOare the two main credit-scoring models. For both the VantageScore and base FICO® score models, the lowest score is 300 and the highest credit score is 850.
But even if you have pretty good credit habits, don’t be surprised if you check your scores and find that you’re below 850.
How’s your credit?Check My Equifax® and TransUnion® Scores Now
- What are the benefits of having higher credit scores?
- The main factors that affect your scores: FICO vs. VantageScore
- How to build higher credit scores
- Looking to build your credit? Consider a credit builder loan
What are the benefits of having higher credit scores?
Thankfully, you don’t need a perfect score to qualify for some of the best rates on loans and mortgages. Scores in the 700s can qualify you for great interest rates from lenders. Get your scores anywhere above 760 and you’ll likely be offered the best rates on the market.
Why is this the case? Because banks and credit card companies care less about the specific numbers on your credit reports and more about the broad credit score range where your scores fall.
For example, FICO’s score bands look like this.
- Poor: 300–579
- Fair: 580–669
- Good: 670–739
- Very good: 740–799
- Excellent: 800+
Improving your scores from 740 to 790 will likely have little effect on your interest rate offers since both scores fall in the “very good” range. But moving your scores from 650 to 700 could mean getting lower interest rate offers.
If you want to improve your scores and get as close to 850 as you can, you’ll need to understand what causes your scores to go up or down.
How’s your credit?Check My Equifax® and TransUnion® Scores Now
The main factors that affect your scores: FICO vs. VantageScore
While VantageScore and FICO scoring models have differences, both make it clear that some factors are more influential than others.
For both models, payment history is the most important factor, followed by the total amount of credit you owe (also described as the percent of credit limit used and total balances/debt).
FICO uses percentages to indicate the importance of each factor to your credit scores.
FICO
| Factor | Importance |
|---|---|
| Payment history | 35% |
| Amounts owed | 30% |
| Length of credit history | 15% |
| New credit | 10% |
| Credit mix | 10% |
VantageScore doesn’t assign specific percentages to factors, but it does state that some factors are more influential than others. Here’s how your VantageScore breaks down.
VantageScore
| Factor | Importance |
|---|---|
| Payment history | Extremely influential |
| Age and type of credit | Highly influential |
| Percent of credit limit used | Highly influential |
| Total balances/debt | Moderately influential |
| Recent credit behavior and inquiries | Less influential |
| Available credit | Less influential |
How to build higher credit scores
Based on the factors discussed above, here are a few strategies to help you build higher scores.
Pay your bills on time
The frequency of your on-time payments is the factor that influences your scores the most.
Setting up automatic payments on your credit card bills can be a helpful way to avoid forgetting a payment, but make sure you have enough money in your accounts to cover automatic payments. Otherwise, you may have to pay fees.
Make sure there are no negative marks on your credit report
Even if you’ve never missed a payment, there could be illegitimate negative marks on your credit reports. Be sure to check your TransUnion and Equifax credit reports for free from Credit Karma and make sure there are no errors.
If you find incorrect marks on your reports, you can dispute them. Upon receiving a dispute, the credit-reporting companies are required to investigate and fix errors in a timely manner.
Even if you have legitimate negative marks on your credit reports, they will affect your scores less over time and should eventually fall off your reports completely.
Keep your credit utilization rate low
Both scoring models weigh this factor heavily. To determine your current utilization rate, begin by adding up the credit limits of all your credit cards.
Let’s say you have two credit cards — one with a limit of $2,000 and another with a limit of $3,000. This gives you $5,000 of total available credit.
Next, divide your current total balances (what you owe) by your available credit and multiply it by 100 to get the percentage. Imagine you have $1,000 in outstanding balances — $1,000 divided by $5,000 is 0.20 — so, in this example, your utilization rate would be 20%.
As you spend less of your available credit, your credit utilization rate goes down. In the above example, if you reduced your credit card spending to $500, your utilization rate would drop to 10%.
What credit utilization rate should you aim for? Using no more than 30% of your available credit is a great start.
Limit your hard credit inquiries
When you apply for credit of any kind, it generates a hard credit inquiry. Since applying for new credit can be an early sign that someone is dealing with financial troubles, hard inquires will have a slight negative effect on your scores temporarily.
If you want to get a really high score, you’ll want to limit your hard inquiries — meaning you should only apply for new credit when necessary.
Don’t cancel cards needlessly
As you can see, both models look favorably on consumers who have longer credit histories and lower credit utilization ratios.
Unfortunately, you can’t magically create 10 years of credit history. What you can do is choose one or two credit cards to keep active and never cancel. Not only will this help you build a longer credit history, but it can also help you keep your credit utilization rate low, since more active credit cards in your name means more available credit.
Looking to build your credit? Consider a credit builder loan.
Taking out a credit builder loan can help you build your credit by giving you the opportunity to show you can make regular on-time payments, which is an important part of your credit scores.
When you get a credit builder loan, the lender typically puts the money you’ve borrowed into a reserve account it controls. You then make regular payments toward the loan, building a positive payment history that’s reported to the credit bureaus. When the loan is paid off (or you reach a certain threshold), the lender gives you access to the funds.
Loan fees, interest and repayment terms vary among lenders, so you’ll want to compare your options before applying.
You might also want to consider Credit Karma’s Credit Builder plan, which can help you build low credit while you save.
Bottom line
While having perfect credit scores may not be necessary to qualify for great rates on loans and mortgages, improving poor scores to good, or good scores to excellent, can make a big difference.
By following the right credit habits and building your credit following the guidelines outlined above, you can make improvements to your scores. And if you happen to reach 850 along the way, then consider it a cool bonus.
How’s your credit?Check My Equifax® and TransUnion® Scores Now
About the author: Clint Proctor is a freelance writer and founder of WalletWiseGuy.com, where he writes about how students and millennials can win with money. When he’s away from his keyboard, he enjoys drinking coffee, traveling, obse… Read more.
