A person's credit score is a measure of his creditworthiness, as determined by credit reporting agencies, which compile relevant information about a person's lending history in a credit report. This report contains information about debts that a person has incurred and then paid off. The chief means by which a person can raise his score is to take out credit and then consistently pay it back on time.
Credit Scores
A credit score is designed to give lenders and other businesses an indication of whether an individual provided a loan will pay it back on time. To determine this, credit reporting agencies look at how a person has paid back loans in the past. These agencies believe that a person's past behavior is a good indication of how he will act in the future. People who have paid back loans on time in the past are rewarded with higher scores.
Taking Out Debts
The only way that a person can raise his credit score is to take out a loan and then pay it back on time. This demonstrates to credit reporting agencies that the person, if issued a loan, is capable of repaying it according to the terms specified by the lender. So, making purchases on a credit card -- in effect, drawing money against a line of credit -- and then paying it off will increase the person's credit score.
On-Time Payments
Taking out a loan and paying it off will only raise a person's credit score if the person pays the loan back on time and in full. Anytime a person fails to pay back a loan according to the terms set by the borrower, he will see his score fall. If the debt remains delinquent for a long time and enters into collections, then the person's score will fall precipitously.
Timeline
The exact formulas by which credit reporting agencies score borrowers remains proprietary information. However, the longer a person's credit history and the more consistently he has shown that he is able to pay back his loans on time, the higher his score will be. To enter the top echelon of credit scores will take years of taking out loans and paying them off. Taking out a single large loan and paying it off quickly will only raise a person's score slightly.
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