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Understand Your Credit Score and Steps for Improvement

Establishing good credit is imperative for obtaining loans and securing favorable interest rates. Please refer to the following for tips on how to effectively manage your credit and increase your score:

  • Know what is in your score – FICO Scores are calculated from many different pieces of credit data in your credit report. This data is grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining how your FICO Scores are calculated. Your FICO Scores consider both positive and negative information in your credit report. Late payments will lower your FICO Scores, but establishing or re-establishing a good track record of making payments on time will raise your score.


  • Understand the impact of certain items – Per
    • High Impact: Usage (outstanding balance on all cards divided by total combined credit line), Payment History (timeliness), Derogatory Marks (collections, liens, bankruptcies, etc. can stay on your account for 7 years)
    • Medium Impact: Age of Credit (amount of time you have had all your accounts open)
    • Low Impact: Total Accounts, Credit Inquiries
  • Frequently check your credit report – You can use to get your reports from Equifax, TransUnion, and Experian for free once per year; pay careful attention to derogatory marks which can stay on your report for at least 7 years. If you find a mistake in your report, contact the appropriate credit bureau(s) and lender(s).
  • Set up payment reminders – These will help to ensure that you never miss a payment. If possible, you should also consider setting up automatic payments to be deducted from your bank account. Be careful with the latter if you dont have enough money for these payments, not only will you owe interest on your remaining balance, you will be assessed an overdraft fee from your bank. Also, be sure to continuously monitor your bills to ensure all charges are accurate.
  • Pay your bills on time – Even if you are just paying the minimum, timely payments help establish your reliability. This is one of the most influential factors in determining your credit score.
  • Pay more than the minimum amount – The longer you take to pay off a balance, the more you will end up paying in interest. It is a good rule of thumb to not charge more to your card than you could pay in cash. With that in mind, you should try your best to pay off your entire balance each month to avoid paying any interest.
  • Keep your balances low – A high debt percentage could indicate that you are spending above your means and may be at higher risk of default; you should try to keep your credit utilization at less than 30%. It is important to note that there is no history associated with usage and it is recalculated each month.
  • Do not rush to close unused credit cards – The age of your credit is a calculation of the average period of time that you have had all of your open accounts; so, if you close one of your oldest cards, you could significantly reduce the length of your credit history. If you do leave unused cards open, make sure to monitor them for fraudulent activity.
  • Do not open a lot of accounts in a short period of time – This will have a negative effect on the age of your credit, which is even more important than the number of accounts you have open.

While establishing good credit is important for debt management purposes, it is also integral to securing a mortgage, a car loan, and other collateralized debt. In addition, a high credit score can result in lower interest rates and higher borrowing capacity. Before taking on any new debt, be sure to contact a Hefren-Tillotson advisor for personalized advice and recommendations.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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