Building a Better Credit Score

A good credit score can save you a great deal of money in the long run, especially when you take out a loan or a mortgage. It can also make a difference when it comes to renting an apartment or even getting a job. But, how are credit scores even calculated?

A credit score is calculated by applying a mathematical algorithm to the information in one of your three credit reports, Equifax, Experian and TransUnion, but there is no single algorithm that is used by all lenders to compute the scores. Most scoring models take into account your payment history on loans and credit cards, how much credit you regularly use, how long you’ve had your accounts open, the types of accounts you have, and how often you apply for new credit.

Improving a bad credit score may seem like a daunting task, but with the right steps you can do it. The first thing to do is obtain a copy of your credit report from a site such as Then it’s time to get to work. Here are some helpful tips to improve your credit score.

Pay Your Bills on Time.
It is all too easy to lose bills in piles of papers and forget about them. But one of the most important parts of a good credit score is a solid record of on-time payments.  Setting up automatic, recurring, or one-time bill payments can help get you organized and boost your credit score at the same time.

Keep Credit Card Balances Low.
The credit utilization ratio is another important factor in your credit score calculation. It is calculated by adding all your credit card balances at any given time and dividing that amount by your total credit limit. For example, if you charge about $2,500 each month and your total credit limit across all of your cards is $10,000, then your utilization ratio is 25%. The smaller that percentage, the better. So your best bet is to pay down the balances, and keep the balances low. Lenders typically like to see ratios of 30% or less and people with the highest credit scores often have very low credit utilization ratios.

Be Careful Using Your Credit Cards.
According to Experian, one of the major credit reporting bureaus, it’s important to pay off debt instead of moving it around. Also, closing cards you don’t use as a short-term strategy to improve your credit score is not a good idea, as owing the same amount but having fewer open accounts may actually lower your credit score.

Try Not to Apply for Credit Needlessly.
According to Experian, every time you apply for new credit, you’re creating another hard inquiry on your credit report and the temptation to overspend and accumulate unwanted debt. Too many hard inquiries can have a negative effect on your credit score, but this will fade over time. Keep in mind, hard inquiries remain on your credit score for two years.

Don’t Close Unused Credit Cards.
Keeping your unused credit cards open, as long as they do not carry annual fees, is a smart strategy. Closing an account may increase your credit utilization ratio, meaning your credit score could decrease.

How long will it take to rebuild a credit score?
The length of time it takes to rebuild your credit score after a negative change (late payments, a public record item (bankruptcy), etc.) depends on the reasons behind the change. But time is your ally when you’re trying to improve your score. There’s no quick fixes for bad credit. If you have a negative element on your credit report, it will continue to 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.
  • Inquiries remain on your report for two years.
Remember that it can take some time to change your credit score, but it will be worth it in the long run.

To learn more information about how Pioneer can be a financial partner in helping you achieve your goals, call or visit one of our branch locations.
The material provided on this website is intended for informational purposes only. Links to other web sites are provided for reference and do not constitute a referral or endorsement by Pioneer or its affiliates. Please note that such material is not updated regularly and that some of the information may not be current. It is recommended that you consult with a financial professional for assistance regarding the information contained herein.