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WalletPrep worksheet · Credit

How to improve your credit score

Name ____________________ Date __________

Key ideas

  1. Payment history is the biggest factor. In the FICO model, on-time payments make up about 35% of the score. One payment 30 days late can hurt for years.
  2. Card balances are the fastest lever. Amounts owed are about 30%. Utilization is recalculated each month, so paying balances down can show up within one or two statements.
  3. Checking your own score never hurts it. Checking your own credit is a soft inquiry. Only applying for credit adds a hard inquiry, which can cost a few points.

Vocabulary

Credit score
A 3-digit number, usually from 300 to 850, that predicts how likely you are to repay debt on time. Lenders use it to set rates.
Credit report
A record of your credit accounts, payments, balances and some public records, kept by each of the three credit bureaus.
Hard inquiry
A credit check made when you apply for credit, like a card, loan or mortgage. It can lower your score a few points for a while.
Annual fee
A yearly charge some credit cards add to your bill just for having the card, whether you use it or not.
Secured credit card
A credit card backed by a cash deposit you make up front, usually equal to your credit limit. It is a common first card for building credit.
Authorized user
Someone a credit cardholder adds to their account so they can use the card. An authorized user generally doesn't owe the bill.

Work it out

Jordan has two cards: a $2,000 limit with a $1,400 balance and a $3,000 limit with a $1,600 balance. He wants his overall utilization under 30%.

  1. Card 1 balance
  2. Card 2 balance
  3. Total balances
  4. Total limits
  5. Utilization now
  6. Paid down over 2 months
  7. New total balance
  8. Utilization after

Check yourself

  1. Which part of a FICO score carries the most weight?

    • A. Credit mix
    • B. New credit
    • C. Payment history
    • D. Length of credit history

  2. You have $8,000 of total card limits and $4,000 of balances. How much must you pay down to reach 25% utilization?

    • A. $1,000
    • B. $2,000
    • C. $3,000
    • D. $4,000

  3. Does checking your own credit score lower it?

    • A. No, it's a soft inquiry
    • B. Yes, by a few points
    • C. Only if you check more than once a month

Your turn

Turn on autopay for the minimum payment on every card and loan you have. Then look up each card's statement closing date and set a reminder to pay it down 3 days before.

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Answer key

How to improve your credit score

Work it out

  1. Card 1 balance$1,400
  2. Card 2 balance$1,600
  3. Total balances= $3,000
  4. Total limits$5,000
  5. Utilization now60%
  6. Paid down over 2 months− $1,750
  7. New total balance= $1,250
  8. Utilization after25%
  1. Jordan's balances are $1,400 + $1,600 = $3,000 on $2,000 + $3,000 = $5,000 of limits. $3,000 ÷ $5,000 = 60%.
  2. To get to 25%, his balances must fall to $5,000 × 25% = $1,250. That means paying $3,000 − $1,250 = $1,750.
  3. He pays $875 a month for 2 months, before each statement closes, and keeps autopay on for the minimums.

Check yourself

  1. C. Payment history Payment history is about 35% of a FICO score, the largest single part. Amounts owed come next at about 30%.
  2. B. $2,000 25% of $8,000 is $8,000 × 25% = $2,000. $4,000 − $2,000 = $2,000 to pay down.
  3. A. No, it's a soft inquiry Checking your own credit is a soft inquiry and doesn't affect your score. Only applications for new credit cause hard inquiries.