How can an individual improve their credit score?

Improving a credit score is fundamentally linked to an individual's ability to manage their credit responsibly. Making timely payments and reducing outstanding debts is crucial because payment history accounts for a significant portion of a credit score. When payments are made on time, it reflects positively on the individual's creditworthiness, showing lenders that they are reliable and responsible borrowers.

Additionally, reducing outstanding debts lowers the credit utilization ratio, which is another vital factor in credit scoring. This ratio compares an individual's current credit card balances to their total credit limits. A lower utilization ratio can enhance credit scores because it indicates that the individual is not overly reliant on credit and can manage their debt effectively.

In contrast, applying for multiple credit cards can lead to multiple hard inquiries on a credit report, which may temporarily decrease a credit score. Taking out new loans can also result in hard inquiries and can increase overall debt levels if not managed wisely. Increasing spending limits, while it may initially seem beneficial, can lead to higher utilization if the individual does not adjust their spending habits accordingly. Therefore, the combination of timely payments and reducing outstanding debts directly and positively impacts the overall credit score.