Keeping Score

Want a better FICO score? Step No. 1: Pay bills on time


Paying your bills on time every time is vital, but it’s just the start to building a good credit score.

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Question for the expert

Dear Credit Score Report,
What’s the key to getting a good credit score? I always hear people talking about them on the news, but I just don’t really know a whole ton about them, other than it’s important to have a good one so you can get a credit card or a car loan or whatever. I’d like to have one of those myself someday, but I’m totally clueless about what it all means. Help! — Vince

Answer for the expert

Hey Vince,
Here’s the short answer to your question: Pay your bills on time.

Of course, it would be great if that was the only factor impacting your credit score. There are, however, plenty of other variables to keep in mind, though maintaining a record of on-time payments is the most important.

Just how important it is depends on the scoring model used to generate your credit score. After all, there are several different scoring models in use by lenders. But the most widely used credit scores all consider your payment history to be the most important factor.  We’ll focus on the FICO credit score, since banks most often look to that scoring model to help them make lending decisions.

Under the FICO model, 35 percent of your FICO score is based on your payment history, making it the single biggest factor in determining your score. Just where does this information come from? Lenders and businesses you’ve dealt with provide a record of your payment history, including whether or not you paid your bills on time, to credit bureaus. The bureaus — the three biggest of which are Equifax, Experian and TransUnion — collect that information and list it in credit reports or put the data along into third-party scoring models, such as FICO, to come up with your credit score.

Businesses may report both positive and negative information to the credit bureaus to be included in your credit report and, by extension, your credit score. Your credit report may also include any bankruptcies or other major financial troubles you’ve had as a borrower.

That’s why it’s important to make sure that your credit report information is accurate. Any incorrect negative information may unfairly suggest that you are an irresponsible borrower and could hurt your credit score. To prevent this, you can order copies of your credit reports from the three major credit bureaus using every 12 months to make sure that everything looks accurate. If it doesn’t, be sure to take the necessary steps to correct it. (’s sample letters for disputing credit report errors can help.) Since Equifax, Experian and TransUnion may each have a record of different information reported by various businesses and banks, be sure to take a look at the separate reports from each bureau.

The next most important factor influencing your credit score (making up 30 percent of the score) is the amount you owe, though it’s about more than just a grand total number. FICO compares the amount of debt you currently owe to:

  • The amount of debt you started off with, in the case of installment loans, such as student debt.
  • The amount of debt you potentially could have, in the case of revolving debt, such as credit cards.

For example, in the case of revolving debt, a credit cardholder who has $2,000 in debt on a $10,000 line of credit would likely have a better FICO score — all other things being equal — than a cardholder who has $1,000 in debt on a $2,000 credit line. That’s because the second borrower is using a larger portion of the total credit available to him. From a lender’s standpoint, a lower utilization ratio suggests you are less likely to max out your existing line of credit.

It also helps if you’ve been responsible with a variety of debts. The more balances — credit cards, student loans, car loans, etc. — that you’ve paid down responsibly, the more likely the lender is to assume that you’ll handle any future debts wisely.

Please note, Vince, that timing is everything. Paying your bills mostly on time just doesn’t cut it. You’ll also want to make more than just the minimum payment in an effort to pay down that debt as quickly as possible. This applies to non-FICO credit scores as well. Even if your potential lender considers the lesser-known VantageScore scoring model, the two most important factors are still payment history (32 percent) and utilization — defined by VantageScore as “percentage of credit amount used/owed on accounts” — which accounts for 23 percent of your VantageScore.

There are other factors — such as how long you’ve had your oldest credit account and how many times you’ve applied for credit in the last few months. (See the pie chart on this page for more information.) But none impact a credit score like your payment history. So, Vince, pay all your bills ahead of any due dates and reduce your debt, and your credit score will certainly indicate your responsible borrowing behavior. When it does, those loan approvals will follow.

To get your credit scoring questions answered in the Credit Score Report, please send them my way.

See you next week.

See related:10 things you must know about credit reports and scores8 legitimate ways to improve your credit score now, How to read, understand your credit report, How to dispute errors on your credit report, Free credit reports: How to get the one that’s actually free

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