By Obioha Okereke, College Money Habits

Credit is one of the most important, yet complex topics when it comes to personal finance. The purpose of this article is to help break down the key factors that help make up your credit score, and some habits you can start today to help you boost your score.

1. Make Your Payments on Time

Your payment history is the most significant factor in calculating your credit score. In fact, it accounts for 35% of your total credit score. Making payments to credit accounts on time is the best way to build a strong payment history and strengthen your credit score.  

Late or missed payments can cause your credit score to decline. The impact can vary depending on your credit score — the higher your score, the more likely you are to see a steep drop. Late or missed payments can also stay  on your credit report for several years, which is why it is extremely important to avoid them. 

To help ensure you are making your payments on time, try setting up automatic payments. 

Wondering what to do after missing a payment? Check out What to Do if You’re Late on a Credit Card Payment by Experian.

2. Keep your Credit Utilization Low

 It is important to understand your available credit and how much of it that you are using. A general guideline is to use no more than 30% of your available credit, and using less is better for your credit score.

The percentage of your available credit that you use is called credit utilization. You can calculate your credit utilization using the following formula:

Credit Utilization Rate =  (Total Debt, how much credit you’ve used) / Total Available Credit) x 100

If your current available credit is $5,000 and you make several purchases that total $3,000, you would have a credit utilization of 60%.

To help keep your credit utilization low (under 30%) and avoid maxing out your credit card(s), it is best to not use your credit card in the following situations:

  • When you are near your credit limit
  • If you don’t have a plan to pay it off
  • Paying for non-essentials that are outside of your budget

3. Limit Loan Applications in a Short Period of Time

When you apply for a new loan, lenders will often conduct a hard inquiry, or “hard-pull,” which is where they request to view your credit report as part of the loan approval process. When a hard inquiry occurs, there can be a small drop in your credit score.  Applying for multiple loans or credit cards in a short period of time can lower your credit score even more, and signal to lenders you are a high-risk customer.

“Limiting the number of times you ask for new credit will reduce the number of hard inquiries in your credit file. Hard inquiries stay on your credit report for two years, though their impact on scores fades over time”.  -Experian

4. Check Your Credit Score

Regularly checking your credit score is the best way to stay up to date on your credit health. This allows you to keep track of increases or decreases to your credit score and stay on top of any fraudulent activity.

Wondering where you can find your credit reports? Go to to generate free copies of your credit reports from the three credit bureaus: Equifax, TransUnion and Experian. 

A common misconception is that you only have one credit score – this is not true! Different credit bureaus and credit card companies use a range of different scoring models and, as a result, may report different credit scores for the same individual. 

The most common scoring model is the FICO score, which is often used when applying for a home loan, car loan or credit card. Based on the FICO scoring model, your credit score will range from 300 to 850. Credit score ratings are:

  • 300-579: Poor
  • 580-669: Fair
  • 670-739: Good
  • 740-799: Very Good
  • 800-850: Excellent

It’s recommended to check your score at least once a year, as well as before any loan or credit applications. You can also check them more regularly. Checking your credit score is what’s known as a “soft inquiry,” and will not affect your score.

5. Be Cautious When Taking Out a Cash Advance

A cash advance is when an individual takes out cash against their credit limit. Unlike withdrawing money from a checking account, when you take out a cash advance, you are borrowing money and will usually pay for this service.

On its own, a cash advance is not a bad thing. Nevertheless, a cash advance can become dangerous if you are not careful.

Note: The money you borrow for a cash advance is added to your credit card balance, not withdrawn from your checking account.

However, in the event of a sudden emergency, you might feel a cash advance is your best option. Before taking a cash advance, be aware of the following:

  •  A cash advance is a loan!
  • You might have to pay a service charge for taking out a cash advance.
  • The interest rate on a cash advance might be greater than the APR on your credit card.
  • A cash advance will use your available credit, meaning that it will impact your credit utilization.

For instance, if the available credit on your credit card is $1,000 and you take out a cash advance of $500, you would have a credit utilization of 50%. This could negatively affect your score as you would exceed 30% utilization. If you ever plan on taking out a cash advance, make sure that you have a plan to pay off the debt and do your best to avoid using more than 30% of your available credit.

Want to learn more about credit utilization and the factors that make up your credit score? Check out How is My Credit Score Calculated.

Now that you know how your credit score is calculated, it is time to begin applying what you’ve learned! Aim to be strategic with how you use your credit card and make sure that when you are applying for loans, you have a debt-repayment plan that will enable you to pay off any debts you take on. Your credit score is very important when it comes to applying for home loans, car loans, and credit cards so always make sure to take care of it. As you work towards building your score, make sure to keep some of the tips mentioned in this article in mind and you’ll be well on your way to securing a perfect score of 850.



If you have any questions regarding these personal finance resources and/or general questions about managing your personal finances, contact Obioha Okereke from College Money Habits at

Ready to test your credit knowledge?

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