How to Improve Your Credit Score Over Time

Key Takeaways

• Payment history is the most important factor in your credit score.
• Keeping credit utilization low can quickly improve your score.
• Negative marks typically fall off your credit report after 7–10 years.
• A stronger credit score may help you qualify for better student loan refinance rates.

The Main Ways Your Credit Score Can Improve Over Time

Your credit report is one of the defining numbers of your adult life. For instance, it is one of the key factors in determining your interest rate and loan terms when you try to refinance student loans. This means your credit score can potentially make hundreds of dollars difference to your monthly payments.

The five main factors determining how your credit score is calculated include:

• Payment History
• Loan Balances
• Length of Credit History
• Types of Credit
• How Much New Credit You’ve Applied For

While a credit score reflects credit payment patterns over time, there is an emphasis on recent information. Regardless of your current standing there are a few tips that you can use to help improve your credit right away.

First, making sure you always pay your bills on time can make a huge difference. This is the single biggest factor — about 35% of your total score — and having a record of consistent, timely student loan payments enhances your score and financial profile.

Incorporate bimonthly billing into your payment plans. One of the factors in your credit score is your credit utilization ratio. So, if your credit limit is $3,000 per month and you buy $1,500 on credit, for example, you have a 50 percent credit utilization ratio that month. But, if you pay your bill off twice in a month, your credit utilization ratio will fall to help your score. Many experts recommend keeping your credit utilization below 30%, and ideally below 10%, to maximize credit score improvement.

How FICO Scores Are Calculated

Most lenders use FICO® Scores, which typically range from 300 to 850. While scoring models vary slightly, FICO generally weighs the following factors:

• Payment history (35%)
• Amounts owed / credit utilization (30%)
• Length of credit history (15%)
• Credit mix (10%)
• New credit inquiries (10%)

A higher score generally improves your eligibility for lower interest rates when refinancing student loans.

Passage of Time Helps Too

Lengthier credit history helps your credit score. Debt that you’ve handled well and paid as agreed is good for your credit, and the longer your history of good debt, the better your score. This is one reason it’s not usually a good idea to close credit card accounts. In fact, you want to continue to use all of your cards. You can still prefer one or two, but it’s a good idea to make a few minor purchases sporadically and pay the balance off in full.

Now, if you have negative information on your credit report, you may feel that time is against you. After all, your credit reports will reflect your payment history on any credit account you’ve had in the past 7 to 10 years.

When you seek to rebuild your credit history, you do have to wait for the negative change (such as delinquency or a collection account) to be pushed off your report. According to Experian, the following events affect your credit score until they reach a certain age:

• Delinquencies remain on your credit report for seven years.
• Most public record items remain on your credit report for seven years, although some bankruptcies may remain for 10 years and unpaid tax liens remain for 10 years.
• Inquiries into your credit history remain on your report for two years. Hard inquiries (such as applying for new credit) can temporarily lower your score, while soft inquiries (such as checking your own credit) do not affect your score.

There is one additional way in which time can help. Extending the time, you have to repay your loans is also an option. Still, while this may lower your monthly payments, you will end up paying more overall. Refinancing may be the better solution.

How Your Credit Score Affects Student Loan Refinancing

When you apply to refinance student loans, lenders typically review your credit score, income, employment history, and debt-to-income ratio. A stronger credit profile may help you qualify for a lower interest rate, which can reduce your monthly payment or total loan cost over time.

If you’re unsure whether your current credit qualifies, you can check your rate without impacting your credit score through LendKey’s prequalification process.