The Bird's Nest

What Is A Credit Score & How To Improve It?


Figuring out your credit score and understanding how to improve it is essential for reaching financial success. Maintaining a good credit score will allow for several different things, including having lower interest rates on different credit lines and the ability to apply for loans to buy a home. In the end, it determines how much financial freedom you may be entitled to.  

What is a credit score?

Your credit score can range anywhere from 300 to 850. This number tells lenders whether you are trustworthy and capable of managing your financial affairs. A high score would indicate that you are trustworthy and will pay off all of your debts responsibly. A lower score means it will be harder to win lenders over and will likely result in higher interest rates. The purpose of the score is to determine whether or not you appear creditworthy to lenders and creditors.  

What affects your credit score?

Payment History

Nearly 35% of your credit score is affected by your payment history. Do you pay your credit payments and loans on time? This is one of the more important aspects of your credit score that is taken into account. A history of on-time payments looks good and inspire confidence that the same habits of money management will continue, which will lead to higher credit scores.   

Conversely, if there is a record of late payments (of more than 30 days), your credit score will go down. Often it is difficult to bring the score back up once it has dropped due to late payments, and those records will last on your credit report for several years. After this occurs, it is imperative to raise your credit score through disciplined tracking of expenses and timely payments. Over time and after diligently working to make those payments, your credit score will not be as affected by those late credit payments. 


Another huge portion of what affects your credit score (around 30%) is the amount of debt, also known as credit utilization. Credit utilization is a percentage of the credit that you are relying on, and it determines how frequently you rely on those credit lines to make your monthly payments. Ideally, you want to keep credit below 30% credit limit. The lower the percentage the better.  

Age of Credit Line

It is hard to get around this one, but you want to establish good credit as early as possible. The more history you have behind a good credit score, the better your chances are of having that be a positive impact with a higher score.  

New Credit Line & Hard Inquiries

These affect your credit score negatively, especially if you are opening several accounts all at once or in close succession. On paper, it suggests that you are more likely to default if you are stretched that thinly between accounts.  Every time you apply for a loan or new credit line, they have to report what is called a hard inquiry onto your credit report.  

How to improve your credit score?

A good credit score can open doors and allow you to reach your financial goals. Even if your credit score is not at a place where you would like it to be, or it needs to be higher in order to qualify for more financial products, there are ways to improve it and get it where you want it.  

Make Payments on Time

One of the simplest ways to increase credit score is to ensure your payments are on time. Whatever approach works best for you, whether it be automated recurring payments, or setting reminders, find one and stick to it.  

Lower Your Debt

Another method to improve your credit score is lowering debt and getting your credit utilization percentage down below 30 percent. Look at your credit lines to see how much is owed and the interest rates applied to each one. This will help give you a better sense of where you stand and what you need to adjust when you develop your budget for each month

Once you commit to making payments on time and are able to find ways to reduce spending, allow time for the process to work itself out and increase your credit score with each passing credit report. It is a process that requires patience and diligence, but is well worth the reward to gain more financial freedom.  

No matter what your credit score is, Pathway Homes may have a program fit for you and your financial needs. Whether you are hoping to make that down payment on your own home, or are interested in a rent-to-own home program, we are willing to work with customers committed to managing their finances well.  

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