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Individuals have a near-record level of credit card debt — $1.18 trillion as of the primary quarter of 2025, in keeping with the Federal Reserve Bank of New York. The common bank card debt per borrower was $6,371 throughout that point, primarily based on knowledge from TransUnion, one of many three main credit score reporting corporations.
Many individuals do not perceive why a standard technique that may assist them pay down that debt — paying payments on time — is not all it takes to enhance their credit score. Separating truth from fiction is important that will help you pay down debt and lift your credit score rating.
This is the reality behind a standard credit score delusion:
Delusion: Paying payments on time ensures a excessive credit score rating.
Truth: Your cost historical past is crucial to your credit score rating. Nonetheless, not all invoice funds are handled equally, and making them on time is not all that counts.
Your credit score rating is a three-digit numerical snapshot, sometimes starting from 300 to 850, that lets lenders know the way seemingly you’re to repay a mortgage. The common American’s rating is 715, in keeping with February data from scoring model FICO.
This is what you have to learn about on-time funds and your credit score:
Not all debt funds issue into credit score scores
“You could be paying rent-to-own, personal faculty tuition, utilities, or web funds on time each month, and also you assume it helps your credit score rating,” mentioned Yanely Espinal, director of instructional outreach for monetary literacy nonprofit Subsequent Gen Private Finance. “However a number of these usually are not conventional cost sorts and usually are not reported to the credit score bureaus — so there isn’t any influence.”
For instance, making on-time funds on purchase now, pay later, or BNPL, loans could not assist your credit score rating, regardless that 62% of BNPL customers incorrectly imagine they’ll, in keeping with a new LendingTree survey.
Whereas some BNPL suppliers do report certain loans to the credit score bureaus, this isn’t a common apply. And BNPL customers may even see a unfavorable credit score influence in the event that they fall behind.
“Some BNPL lenders will report missed funds, which might harm your rating,” mentioned Matt Schulz, chief client finance analyst at LendingTree and creator of “Ask Questions, Save Cash, Make Extra.”
A straightforward technique to verify what funds are and are not influencing your credit score: check out your credit score report. You may pull it without cost, weekly, for every of the most important credit score reporting companies at Annualcreditreport.com.
‘Go for the A+’ on credit score utilization
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Whereas cost historical past can account for 35% of your score, in keeping with FICO, it is not the one issue that issues. How a lot you owe relative to how a lot credit score you’ve accessible to you — often called your “credit utilization” — is nearly as essential, at about 30% of your rating.
Greater utilization can harm your rating. Goal to make use of lower than 30% of your accessible credit score throughout all accounts, credit score specialists say, and maintain it beneath 10% when you actually need to enhance your credit score rating.
A 2024 LendingTree study discovered that buyers with credit score scores of 720 and up had a utilization charge of 10.2%, in contrast with 36.2% for these with credit score scores of 660 to 719.
“Do not accept B+ when you’ll be able to go for the A+,” mentioned Espinal, who can also be the creator of “Thoughts Your Cash” and a member of the CNBC Global Financial Wellness Advisory Board. “You need to use lower than 10% to actually increase your rating considerably.”
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