Your credit score is a three-digit number that affects almost every major financial decision in your life. It determines whether you qualify for loans, what interest rates you pay, and can even influence apartment applications and job prospects.
Understanding how credit scores work—and how to improve yours—is essential financial knowledge.
What Is a Credit Score?
A credit score is a numerical representation of your creditworthiness—essentially, how risky you are as a borrower. Lenders use it to decide whether to extend credit and at what terms.
Credit Score Ranges
| Score Range | Rating | What It Means |
|---|---|---|
| 800-850 | Exceptional | Best rates, easiest approval, premium cards available |
| 740-799 | Very Good | Great rates, easy approval for most products |
| 670-739 | Good | Competitive rates, standard approval |
| 580-669 | Fair | Higher rates, limited options, may need secured cards |
| 300-579 | Poor | Very limited options, high rates, often requires deposit |
FICO vs. VantageScore
There are two main scoring models:
| Feature | FICO Score | VantageScore |
|---|---|---|
| Used by lenders | 90% of top lenders | Growing adoption |
| Score range | 300-850 | 300-850 |
| Minimum history | 6 months + 1 account active in last 6 months | 1 month |
| Where to check | Experian, myFICO.com | Credit Karma, many banks |
While the scores differ slightly, the factors that influence them are similar. Focus on good credit habits rather than a specific scoring model.
💡 Pro Tip: Most free credit score services show VantageScore. When applying for a mortgage, lenders typically use FICO. Expect slight differences.
What Affects Your Credit Score
The Five Factors (FICO Weighting)
| Factor | Weight | What It Measures |
|---|---|---|
| Payment History | 35% | Whether you pay bills on time |
| Credit Utilization | 30% | How much of your available credit you're using |
| Length of Credit History | 15% | How long you've had credit accounts |
| Credit Mix | 10% | Variety of account types (cards, loans, mortgage) |
| New Credit | 10% | Recent applications and new accounts |
Let's dive deeper into each factor.
Payment History (35%)
This is the single most important factor. One missed payment can drop your score by 100+ points.
What Counts
- Credit card payments
- Loan payments (mortgage, auto, student, personal)
- Retail account payments
- Collection accounts
- Bankruptcies, foreclosures, liens
How to Optimize
- Set up autopay for at least the minimum payment on every account
- Use calendar reminders if you prefer manual payments
- Contact lenders immediately if you can't pay—many offer hardship programs
- Check for errors on your credit report and dispute inaccuracies
Recovery Timeline
| Negative Event | Impact Duration |
|---|---|
| Late payment (30+ days) | 7 years |
| Collection account | 7 years |
| Bankruptcy (Chapter 7) | 10 years |
| Bankruptcy (Chapter 13) | 7 years |
| Foreclosure | 7 years |
📌 Key Takeaway: A single 30-day late payment can tank your score. Set up autopay and never miss a due date.
Credit Utilization (30%)
Credit utilization is the percentage of your available credit that you're using. It's calculated both per-card and overall.
Formula: (Balance ÷ Credit Limit) × 100
Utilization Impact
| Utilization | Impact on Score |
|---|---|
| 0% | Can slightly hurt (shows no activity) |
| 1-9% | Excellent |
| 10-29% | Good |
| 30-49% | Fair (scores start dropping) |
| 50-74% | Poor |
| 75%+ | Severely damaging |
Example
| Card | Limit | Balance | Utilization |
|---|---|---|---|
| Card A | $5,000 | $1,000 | 20% |
| Card B | $10,000 | $500 | 5% |
| Total | $15,000 | $1,500 | 10% |
How to Optimize
- Pay balances before statement closes (balance on statement date gets reported)
- Request credit limit increases (without hard pull if possible)
- Keep old cards open even if unused (maintains available credit)
- Spread spending across multiple cards if near limits
- Pay multiple times per month to keep balances low
💡 Pro Tip: Your statement balance is what gets reported to bureaus, not your current balance. Pay down before the statement date for best results.
Length of Credit History (15%)
Lenders want to see a long track record of responsible credit use.
What's Measured
- Average age of accounts: Sum of all account ages ÷ number of accounts
- Age of oldest account: Longer is better
- Age of newest account: Very new accounts can lower average
- Time since accounts used: Recent activity matters
How to Optimize
- Keep old accounts open even if unused
- Use old cards occasionally (small purchase, autopay it off)
- Think twice before opening new accounts (lowers average age)
- Become an authorized user on someone else's old account
- Don't close accounts just because they're paid off
Building History from Scratch
| Strategy | Time to Build History |
|---|---|
| Secured credit card | Reports immediately |
| Credit-builder loan | Reports immediately |
| Authorized user | Inherits account history |
| Student credit card | Reports immediately |
📌 Key Takeaway: Your oldest account is valuable. Never close your first credit card, even if you don't use it.
Credit Mix (10%)
Having different types of credit shows you can manage various obligations.
Types of Credit
| Type | Examples |
|---|---|
| Revolving | Credit cards, HELOCs |
| Installment | Mortgages, auto loans, student loans, personal loans |
| Open | Charge cards (must pay in full monthly) |
How to Optimize
- Don't open accounts just for mix: Only take credit you need
- Over time, natural mix develops: Mortgage, car loan, credit cards
- Credit-builder loans can add installment credit without major debt
💡 Pro Tip: Credit mix is the least important factor. Never take out a loan just to improve your credit mix.
New Credit (10%)
Opening several new accounts in a short period raises red flags for lenders.
What's Measured
- Hard inquiries: When lenders pull your credit (stays 2 years)
- Number of new accounts: Accounts opened in recent months
- Time since newest account opened: Very recent accounts hurt more
Hard Pull vs. Soft Pull
| Hard Pull | Soft Pull |
|---|---|
| Affects score (temporarily) | Does not affect score |
| Requires your permission | Doesn't require permission |
| Loan and credit applications | Pre-approval checks, background checks |
| Shows on credit report | Visible only to you |
How to Optimize
- Rate shop within 14-45 days for mortgages/auto loans (counts as one inquiry)
- Space out credit applications: Avoid multiple cards in one month
- Check pre-approval tools: Many use soft pulls
- Don't apply for credit you don't need
📌 Key Takeaway: One hard inquiry typically drops your score 5-10 points temporarily. Multiple inquiries in a short period can cause bigger drops.
What Doesn't Affect Your Score
These factors are NOT part of your credit score:
- Income level or employment
- Bank account balances
- Age, race, gender, or marital status
- Where you live
- Checking your own credit (soft pull)
- Rent payments (unless reported to bureaus)
- Utility payments (unless in collections)
- Interest rates on your accounts
How to Check Your Credit
Free Credit Reports
You're entitled to one free credit report from each bureau annually:
- AnnualCreditReport.com: Official source for free reports
- Check all three: Experian, Equifax, TransUnion
- Look for errors: Dispute anything inaccurate
Free Credit Scores
| Source | Score Type | Cost |
|---|---|---|
| Credit Karma | VantageScore | Free |
| Discover Credit Scorecard | FICO | Free (no account needed) |
| Most banks/cards | FICO or VantageScore | Free with account |
| Experian | FICO + VantageScore | Free basic, paid premium |
Quick Wins to Improve Your Score
Immediate Impact (1-30 days)
- Pay down credit card balances (lower utilization)
- Dispute errors on your credit report
- Ask for credit limit increases (lower utilization)
- Become an authorized user on someone's good account
Medium-Term (1-6 months)
- Set up autopay on all accounts
- Open a secured card if you have thin credit
- Use a credit-builder loan to add installment credit
- Stop applying for new credit
Long-Term (6+ months)
- Keep old accounts open and active
- Maintain low utilization consistently
- Diversify credit mix naturally over time
- Build a long payment history
Common Credit Score Myths
Myth: Checking your score hurts it
Truth: Checking your own score is a soft pull and has zero impact.
Myth: Closing old cards improves your score
Truth: Closing cards reduces available credit, increasing utilization, and shortens history.
Myth: Carrying a balance helps your score
Truth: You can have excellent credit while paying in full every month. Carrying a balance just costs you interest.
Myth: You only have one credit score
Truth: You have dozens of scores across different models and bureaus.
Myth: Paying off collections removes them
Truth: Paid collections still appear for 7 years (though newer scoring models weigh them less).
Your Credit Score Action Plan
- Check your credit report at AnnualCreditReport.com
- Dispute any errors with the credit bureaus
- Set up autopay on all credit accounts
- Pay down credit card balances to under 30% (ideally under 10%)
- Keep old accounts open and use them occasionally
- Monitor your score monthly using free tools
- Be patient: Good credit is built over years, not weeks
Your credit score is a long-term project. Focus on consistent habits rather than quick fixes.