Improve My Credit Score: What Makes Up My Score Anyway?

Last updated: May 2019

The credit score, also referred to as a “FICO score,” is a mathematical formula created by Fair, Issac and Company.

My Credit ScoreThe credit score is used by most companies to decide if the applicant is a good credit risk or not. Equifax and Trans Union will calculate the numbers from the credit report and generate a number between 300 and 900.

A low score indicates a bad risk. A score of 700 or more puts the applicant in the lenders’ good books.

How scores are calculated:

Factor Weight Points
Payment History
Bankruptcies, late payments, past due accounts and wage attachments, collections, judgements - none is better
35% 315
Amounts Owed
Amount owed on accounts, proportion of balance to total credit limit - moderate use is best
30% 270
Length of Credit History
Time since accounts opened, time since account activity - active and long time user is best
15% 135
New Credit
Number of recent credit inquiries, number of recently opened accounts - less is best
10% 90
Types of Credit
Number of various types of accounts (credit cards, retail cards, mortgage) - variety is good
10% 90
Potential Totals 100% 900

How Clients Can Improve Their Credit Score

  1. Order a copy of the credit report, review it carefully and correct any significant errors. 
  2. Pay bills on time. 
  3. If there is a questionable credit history, they could open a few new accounts and use them responsibly, paying them off on time. 
  4. Avoid opening accounts without intention of using them. Having five or six of the same credit card type (e.g., Visa), is not favourable. 
  5. Having a credit card or installment loan can help boost a credit score, as long as the balance is not too high. 
  6. Keep balance low in relation to available credit. If the credit limit is $10,000, keeping the balance below $2,500 (or 25 per cent of the limit) will improve the score. Balances of more than $7,500 (or 75 per cent of the limit) will decrease the score. Going over the limit has an even more negative effect. 
  7. Pay off credit card debt instead of moving it around to lower rate cards. Moving balances to other credit cards (i.e., “balance transfer”) and closing an old account can hurt the score.

Understaning Your Credit Report and Credit ScoreIf you'd like to learn more about your credit score, check out the following free guide: Understanding Your Credit Report and Credit Score

More About Credit 

Any other questions, please contact me or check out this page, Can You Get a Mortgage?

Topics: Credit Fix, Bankruptcy or Consumer Proposal, Mortgages 101, Tips, Credit