How is My Credit Score Calculated, and How Can I Improve It?

If you are a working adult with expenses such as utilities, housing, and transportation to think about, then you will likely already be intimately familiar with the importance of credit scores.

Although many people may consider the credit scoring system to be unfair, the fact remains that it is the most reliable indicator that banks and loan providers have to assess a person’s ability to repay debts.

Around 40% of Americans have no idea what their credit score actually is, according to, and more have no idea how their own score is calculated. Financial freedom requires the ability to understand the myriad forces that affect our financial standing on a daily basis. With that in mind, let’s dive into how credit scores are actually calculated, and how you can improve yours.

Why is My Credit Score So Important?

First off, it’s worth emphasizing why it is so important to care about your credit score. As explained by, a site that specializes in connecting Americans to the financing that they need, your credit score will not only affect whether you receive credit, but it will also affect the terms of repayment.

One of the most pernicious causes of debt in America is higher interest rates that make it difficult to pay off the principal of a loan. If you have poor credit, you will likely only be able to access loans that come with high rates attached.

This will make it increasingly difficult to pay down any debts you have, and will likely create a vicious cycle that deteriorates your credit score further. A good credit score is key to a better financial situation, while a bad one makes unsustainable debt more likely.

How is My Credit Score Calculated?

Now let’s explore how your score is actually calculated. According to, there are a number of factors at play. Most important of these is your payment history – i.e. your previous bills, loans, debts, and overdrafts, which provide 30% of your credit score calculation.

Then there is the actual overall amount of money that you currently owe to various parties (the less you owe, the better). Then there is the actual length of your credit history, or how long you have been using and repaying credit. The more history you have, the better your score is likely to be.

How Can I Improve My Credit Score?

Finally, let’s talk about some of the steps you can take to improve your credit score in order to access more favorable financing in the future. One very easy step you can take is to obtain a low-interest credit card and start making all major purchases with it before immediately paying off the balance as soon as you get home.

This will convince the likes of FICO that you are a customer that frequently uses credit and always pays it off. You can also audit your credit report and check it for errors, as an estimated 79% of all credit reports contain errors and inaccuracies. You can also negotiate your current debts to make them easier to repay, or you can increase your credit limit as a way to instantly boost your score.

Like it or lump it, your credit score is the arbiter of your financial fate. Find yours out today so that you know if it’s time to start cleaning up your score.