You are more than a number. You are a living, breathing person with hopes and dreams. You are a truly unique and special soul.

But when it comes to your credit, well, you’re kind of a number.

As many people know — especially people with bad credit — credit scores are very important to lenders. These three-digit scores are calculated using a variety of factors and banks use them when determining if they should give you a credit card, line of credit or loan. The lower your score is, the bigger a risk a lender thinks it will be that they’ll get their money back from you.

The keepers of the scores are generally the three main credit bureaus — Experian, Equifax and TransUnion — and each of them uses a different model to determine where you fall on a scale from 300 to 850. The closer you are to 850, the better chances you will have of obtaining a loan. Most credit scores fall between 600 to 750, and the best interest rates are usually offered to those with a score higher than 670.


Factors that affect your credit score

If your score is below 670, don't fret as there are ways that you can improve your score. While each of the credit bureaus determines your score differently, there are a number of factors that all of them look at.

• If you’ve made your payments on time. Late payments stay on your record for up to seven years. Ouch. (This makes up 35% of your score calculation*)
• How long you’ve had your accounts. Older accounts, when kept current, are generally better, as far as credit bureaus are concerned. (15% of your score calculation*)
• The kinds of accounts you have. Different weight is placed on home mortgages, student loans, and credit cards, for instance. (10% of your score calculation*)
• How much of your credit limit you’re using. Ideally, credit bureaus like to see that your available credit, also known as credit utilization, is under 25 to 30 percent. Under 10 percent is even better. (30% of your calculation*)
• If you have recent hard inquiries on your report. Hard inquiries are when someone looks into your credit in the interest of opening an account for you. New credit accounts opened in a short period of time could represent a greater risk. (10% of your score calculation)

Why are hard inquiries bad?

It kind of seems like an unfair catch-22: Many creditors have to run a hard inquiry on you before they’ll allow you to open an account. But even the hard inquiry itself can ding your credit. Why is that?

The reason hard inquiries can be bad for your credit score is that they can be interpreted as a sign of a risky borrower. Think of it this way: If someone is having trouble finding a lender, they might have to ask a number of lenders until they find one who’s willing to take a chance on them. Even then, in all likelihood, it may come with a sizeable interest rate. So, as they ask lender after lender, the dings can add up.

Those dings are especially damaging to someone with little to no credit. When you look at those factors above, one thing is clear: more credit is better. When you don’t have much, it doesn’t take much to drop your credit down to a lower, and lower, number.

Is there such a thing as a “soft inquiry”?

Yes! Fortunately, there is. Not all inquiries into your credit qualify as hard inquiries. Unlike hard inquiries, soft inquiries do not land on your credit report and won’t have a negative impact on your credit score. Scenarios that are considered soft inquiries include when you check your own credit or a lender performs a credit check to provide you with a pre-approval offer.

That’s why you may want to investigate what kind of inquiry a lender uses before you apply for a loan. Spotloan, which offers short-term installment loans, does not use major credit reports to make credit decisions and your application will not impact your credit report.

How else can I improve my credit?

The best way to improve your credit is to avoid letting your credit score get too low in the first place. It can take years of hard work for your credit score to build back up. But, if you find yourself in a position where you are needing to improve your credit, there’s no substitute for just staying vigilant in paying your bills on time every month.
Let your accounts age with you, and pay them on time every month. If you’re already late, pay it as soon as possible. Don’t let 30 days late turn into 60 days late, or 60 turn into 90. The credit bureaus look at those numbers too.

If you make on-time payments, an approved loan can help increase your credit score by increasing your available credit and diversifying the types of loan accounts that you have.

And, if you’re in a position where a ding from a hard inquiry could hurt you, you’re best off avoiding that activity altogether.

Remember, you are more than a number in the grand scheme of things. But when it comes to your credit, your number is what matters most.

* Sources:

What's in Your Credit Score
The Difference Between Hard and Soft Credit Inquires
Average Credit Score in Every State