Home > Credit Score > Will Borrowing More Improve My Credit Score?

Comments 0 Comments

If you’ve been researching how to improve your credit scores, you may already know that your mix of credit accounts is one of five key factors that affects your credit scores. If you aren’t familiar with that fact, it simply means that, to achieve the highest possible credit scores, you generally need more than just credit card accounts. An auto loan, student loan, personal loan or even a mortgage can help round out your credit file and, if you’re making your payments on time and aren’t carrying too much debt, help take your scores to the next level.

So if more accounts mean a better score, it might stand to reason that the more you borrow for that car loan, mortgage or personal loan, the better your credit scores will be, right? Not necessarily so, according to John C. Heath, a credit expert and consumer attorney for Lexington Law, which is affiliated with Credit.com.

“Whether the loan benefits the consumer is relative to that consumer,” Heath said. It depends on various factors, including how much debt you’re carrying compared to credit available to you.

“For example, Consumer A has a home loan for $100,000. She does not carry other credit balances and has remaining credit available to her in the amount of $200,000. Consumer B carries a home loan of $500,000. He has [a] credit card balance and a car loan that total an additional $75,000 and has remaining credit available in the amount of $100,000,” Heath said in an email. “Consumer A would most likely be in a better position with her credit score because she has used only 30% of her available credit. Consumer B on the other hand, has used approximately 85% of his available credit. His credit score will most likely be lower.”  

That’s because, while mix of account counts towards 10% of most credit scoring models, the amount you currently owe your creditors makes up about 30%, and keeping those amounts low relative to your available credit is important. So, if you qualify for a $30,000 car loan, but you can put down $10,000 cash, that car loan is still going to improve your mix of credit accounts, but a higher loan amount won’t have a positive effect.

In fact, the lower loan amount and related lower monthly payment could help ensure you don’t overextend yourself and your ability to make all of your payments on time. (And payment history, remember, is the most important aspect of credit scores, accounting for 35% in most scoring models.) 

“You can improve your credit score by keeping an eye on the amount of credit you have in use,” Heath said. “A good rule of thumb is to utilize about 30% of your available credit in order to optimize your credit score.”

Of course, you can strive to keep it even lower. Below 10% can be optimal if you want to improve your credit scores more quickly.

Remember, if you’re trying to improve your scores, especially if you want to do so quickly, your exact point increases will vary depending on your full credit profile. Still, you may be able to give yourself a boost by paying down high credit card balances and/or disputing errors on your credit reports. Plus, you can build good credit in the long-term by paying all your bills on time, keeping debt levels low, limiting new credit inquiries and adding that mix of accounts only as your score and your wallet can handle the, You can track how your credit scores are improving by getting your two free credit scores, updated every 14 days, on Credit.com.

Image: Courtney Keating

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team