Your credit score can impact big parts of your life. For everything from car loans to mortgages, your credit score is an indicator of how good you are at borrowing and paying back money. And the better the credit score, the easier it is for you to access the resources you need to live your life.
The choices you make can directly impact that number. So whether you’re trying to bounce back from bad habits or working to achieve new heights, this guide will help you understand what your credit score is, what affects it and what steps you can take to make it better.
What Goes into a Credit Score?
Ranging between 300 and 850, your credit score is a three-digit number that factors in your current and past ability to borrow money, then pay it back. In short, your credit score offers information to lenders about how risky it is to engage in business with you.
Breaking Down a FICO Credit Score
- 35% of your credit score accounts for your payment history, aka your ability to stay current
- 30% covers how much you owe on your accounts (this includes your credit utilization)
- 15% accounts for your credit history, or how long you’ve had credit and how it’s fluctuated over the years
- 10% covers your “credit mix:” in other words, the variety and quantity of your credit lines
- 10% accounts for any new credit lines you’ve recently opened
No matter what you’re working towards, your credit score can be a key asset or a major hurdle. Your credit score can impact your ability to access things like loans, lower interest rates, housing and even employment.
Even small changes in your score can mean big differences in how much money you spend on interest or fees.
What does your credit score say about your financial reputation?
| Credit Score | Meaning |
| <580 | Lenders would consider you a risk, as your credit is much worse than other U.S. consumers. |
| 580-669 | Your credit score is below average, but some lenders may be open to offering new credit lines. |
| 670-739 | You’re pretty average compared to other Americans; most lenders consider these scores to be fairly good. |
| 740-799 | Lenders would consider you trustworthy, and you don’t have much trouble opening new cards or getting loans. |
| 800+ | You’re a safe bet — most consumers have lower scores, making you stand out from the crowd. |
How Bills Affect Your Credit Report
Your bills are to your credit score as bricks are to a house: Any missing blocks, and the structural integrity of the home will be compromised. And there are surefire ways to build a strong structure:
- Pay Bills On Time
The biggest piece of your score is paying your bills on time. Make a payment even a few days late, and it can hurt your score. Paying every bill on time builds trust and makes your score go up.
- Keep Your Credit Utilization Low
Credit utilization is simply how much of your total credit limit you’re actively using. For example, if your credit card limit is $1,000 and you owe $800, that’s 80% utilization. (And that’s too high!) To achieve a better credit score, try to stay under 30%, and, if possible, under 10%. Want a surefire way to keep it low? Pay off your card completely each month!
- Leave Old Accounts Open
Older accounts show a longer history of good money habits. So resist the urge to close those older, paid-off credit cards — they can actually help your score.
- Limit Hard Credit Checks
Whenever you apply for a new loan or credit card, the company will run a “hard credit check” or “pull.” Too many of these will alert credit rating companies that something’s amiss, and could potentially impact your score.
- Show Your Versatility
Good at paying your monthly credit card bill? Great. Good at paying your credit card bills, car loan and student loans? Even better — different types of well-maintained accounts improve your overall score.
Credit Report Basics
Your credit report is the full story behind your credit score. It shows everything you’ve borrowed and paid (or not paid), and it’s the source of your credit score.
How to Get a Free Credit Report
Per Fair Credit Reporting Act (FCRA), you’re entitled to a free credit report from each of the three big credit bureaus — Experian, Equifax, and TransUnion — once every year. If you’re concerned about your score, plan ahead by spreading out your report requests every four months.
How to Spot Mistakes on Your Credit Report
Look at your history for payments marked late that weren’t, accounts you don’t own or paid-off loans that still show a balance. These errors can drag your score down without you knowing it.
How to Dispute Mistakes on Your Credit Report
All three credit bureaus have a way for consumers to file disputes online. If you need support for an issue on your report, be sure to reach out — they’re obligated by law to respond to your request.
Smart Moves to Build Your Credit
Improving your credit can feel like an uphill battle, especially if your credit history has a record of problems. But to achieve the dream of homeownership, for example, you’ll need a good credit score to get approved for a mortgage at a fair rate.
Try Credit Builder Tools
If you’re just starting out or rebuilding, look into options like secured credit cards or credit-builder loans could be helpful. These programs are designed to help raise scores and build good credit habits.
Deal With Bad Marks
Officially referred to as “derogatory items,” these are demerits on your report. They can include missed payments, bills sent to collections or bankruptcies. Derogatory items can stay on your report for up to seven years, but their impact fades over time.
You’re in Control of Your Score
De-mystifying your credit score is an empowering first step: By understanding what it is and how it works, you now have the tools to understand how to change it for the better.
After all, it’s never too late to improve your credit score. Every bill you pay on time and every balance you lower moves you closer to a stronger financial future with more possibilities.