How to Improve Your Credit Score

Financial Tips

PUBLISHED BY Alwin Wong / February 23, 2021

How to Improve Your Credit Score

For better or worse, your credit score has a big impact on your life. It can dictate what kind of credit you have access to, how much credit you can receive, and how much you will ultimately be paying for this credit. This can result in lots of stress around how you live your day-to-day life.

Credit scores have a controversial past and have long been shrouded in mystery, despite their outsized impact on our lives. For you as the consumer, you need to develop an understanding of what a credit score is and how to improve your credit score.

A FICO score, commonly known as a credit score, is a three-digit number between 300 and 850 that signifies to lenders how creditworthy an individual is.

“Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent,” according to Equifax, one of the three credit agencies in the United States. The average credit score in the United States in 2020 was 710, and most consumers have a credit score of between 600 and 750. 

Building and maintaining a strong credit score can help you gain access to financial products — ranging from mortgages to credit cards to vehicle financing — and at a lower rate. The higher the score, the better deal the borrower gets on those products. 

We will go over how to improve your credit score in this article but first, let’s go over the history of credit scores in America. 

The history of credit scores in America

In early American society, deciding whether someone was trustworthy enough to lend them money required the lender to ask neighbors and friends to vouch for them. As time went on, financial institutions needed a formal structure for determining who was worthy of a loan, based on how likely they were to repay it. The system for tracking and sharing financial information, which underpins the credit scoring system, was developed slowly over nearly 100 years between the early 1800s and early 1900s.

The system has long been considered controversial as individual citizens had little access to their own credit information, which was the basis for decisions that directly impacted their lives. Furthermore, those behind-the-scenes decisions were often made based on race, gender, and other discriminatory policies. It wasn’t until the Federal Trade Commission’s Fair Credit Reporting Act of 1970 that those files were made public. 

In 1989, Fair, Isaac, and Company began selling its FICO score algorithm to the big three consumer credit agencies — Equifax, Experian, and TransUnion — effectively creating a universal scoring system for all American consumers. Credit ratings, however, can vary between the big three credit agencies, as each agency uses credit score information differently when determining borrower eligibility. 


Why credit scores remain controversial 

The credit system has come a long way but still has some inherent flaws. Some would argue that the history of discrimination it was founded on is far from resolved, as the system itself makes it harder for those suffering financial hardships to borrow the money they need to improve their financial standing. 

At the same time, it would be hard to secure financial products of any kind — much less have access to credit cards, mortgages, vehicle financing, student loans, and other financial products — without a quick and efficient way for banks and other financial institutions to assess the risk associated with lending to you.

The traditional credit system is also built with the assumption that individuals collect monthly checks and pay monthly bills, which isn’t very conducive to the reality of today’s employment landscape. 

With more people taking on gig work, freelancing, entrepreneurship, self-employment, and managing a fluctuating income, a system that assumes consistent monthly income doesn’t always fit today’s reality. This is why we tailor our Business Cash Advances for the way gig workers work. Unlike most financial institutions, we don’t take credit scores into account when providing a cash advance. Instead, we want to remove common significant barriers for independent workers when accessing money to support their gigs.

What affects your credit score?

It’s impossible to know how to improve your credit score without knowing what affects it. Your credit score consists of several factors that can be weighted differently by the big three credit agencies. Most models, however, take into account:

  • What sort of financial products you’ve used in the past
  • How quickly you paid them back
  • How much credit you use regularly
  • How long you’ve had those accounts open
  • How often you apply for more credit

As a result, applying for financial products, such as credit cards, can impact your credit score whether you’re approved or not.

When you’re considered for a financial product, lenders conduct what is referred to as a “hard inquiry” as part of their credit check, which signifies to the credit bureau that you’re looking to borrow money and this negatively impacts your credit score.

A “soft inquiry,” by contrast, does not impact the score itself, and is typically used when an individual wants to review their own credit information or when a landlord or employer does a background check on you for their approval process. A soft check can also be performed by a lender who may want to offer you a pre-approval before you have expressed interest in the product. 

If you’re wondering “how does overdraft affect credit score?”, it can get a little complicated as well. Using the extra funds that are made available by overdraft protection will not appear on your credit report. If you don’t repay the fees banks charge for overdraft protection on time, however, that information will negatively affect your credit report. 

What can your credit score affect?

Your credit score can affect your everyday life in ways both big and small, from whether you are eligible for a mortgage to the interest rates that are offered on financial products, insurance products, and credit cards. 

Those with poor credit may struggle to set up a utility account for things like gas and power, and might even have a harder time renting an apartment since landlords often check credit history before approving a new tenant. If you are self-employed and are struggling with debt, it’s important to know your debt management options. 

On the other hand, those with strong credit are more likely to be approved for financial products and will be able to borrow money at a lower interest rate.

Improving your credit score

There are several steps you can take to build your credit, some of which can have an immediate impact while others take time. 

Make payments on time and in full

The first and most obvious is making payments on time and in full, as each payment will help put your credit score in better standing. Similarly, it’s important not to over-borrow, as using too much of the credit that’s provided can serve as a red flag. After all, maxing out your credit cards suggests to lenders that you may not have extra capacity to borrow further and reflects poorly in your credit rating.

Reduce your credit utilization

If you’re wondering how to improve credit score in 30 days, reducing your credit utilization and paying off all your bills on time is a great place to start. A good rule of thumb is to try to stay below 30% of your total credit utilization. That means if you currently have $1,000 in credit available, you should aim to have an overdue balance of $300 or less.

Avoid opening or closing credit accounts

Since the length of credit history is also taken into account on your credit score, you avoid opening up new credit accounts whenever possible and instead, seek to use the credit you already have. It’s also important not to close unused credit card accounts, especially if they don’t charge annual fees. Having the extra unused credit will help improve your credit score over time.

Monitor your credit score

After a long history of hiding credit information from consumers, that information is now readily available, often for free or at a low cost, and typically without adversely affecting the score itself. There is now a wide range of credit building apps and solutions that help you manage, track and improve your credit score, such as CreditWise, Credit Karma, or Credit Sesame. Simply sign up to know what your credit score is and start creating a personal financial plan for you to increase it over time. 

If you are a gig worker looking for a cash advance to help with unexpected business costs, learn how much you can potentially get by signing up with Moves. For more financial resources and gig economy news, be sure to sign up for our newsletter! 


Alwin Wong

Alwin is the Growth Manager at Moves and a part-time freelance photographer. With the rise of the gig economy, he is excited by a world where people can have greater flexibility over their work and challenge the norms of having a traditional 9-to-5 job. Alwin is also an avid travel enthusiast and Toronto Raptors basketball fan.

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