Your credit score is a three-digit number that can have a huge impact on your financial life. It affects whether you can get a loan, what interest rate you'll pay, and even whether you can rent an apartment. Understanding how credit scores work is the first step to improving yours.
What Is a Credit Score?
A credit score is a numerical representation of your creditworthiness—how likely you are to repay borrowed money. Lenders use this score to decide whether to approve your application and what terms to offer you.
The most commonly used credit scores range from 300 to 850. Here's how the ranges typically break down:
The Five Factors That Affect Your Score
Your credit score is calculated based on five main factors:
Payment History
The biggest factor. Paying your bills on time, every time, is crucial. Even one late payment can hurt your score significantly.
Credit Utilization
This is how much of your available credit you're using. Experts recommend keeping utilization below 30%, ideally under 10%.
Length of Credit History
Longer credit history is better. This includes the age of your oldest account, newest account, and average age of all accounts.
Credit Mix
Having different types of credit (credit cards, loans, mortgage) shows you can manage various credit types responsibly.
New Credit
Opening several new accounts in a short time can lower your score. Each application typically results in a hard inquiry.
How to Improve Your Credit Score
Improving your credit score takes time, but these strategies can help:
- Pay all bills on time: Set up automatic payments or reminders to never miss a due date
- Reduce credit utilization: Pay down credit card balances and avoid maxing out cards
- Keep old accounts open: Even if you don't use them, old accounts help your average credit age
- Limit new credit applications: Only apply for credit when you truly need it
- Check your credit report for errors: Dispute any inaccuracies you find
- Become an authorized user: Being added to a family member's old, well-managed card can help
Quick Tip
Checking your own credit score or report is a "soft inquiry" and doesn't affect your score. Check it regularly to track your progress and catch any errors early.
Common Credit Score Myths
- Myth: Checking your credit hurts your score
Fact: Checking your own score is a soft inquiry and has no impact - Myth: You need to carry a balance to build credit
Fact: Paying in full each month is actually better for your score - Myth: Closing old cards improves your score
Fact: This can hurt your score by reducing available credit and credit history length - Myth: Income affects your credit score
Fact: Income isn't a factor in credit score calculations
Where to Check Your Credit Score
You can check your credit score for free through:
- Many credit card issuers provide free scores to cardholders
- Bank and credit union mobile apps
- Free services like Credit Karma or Credit Sesame
- AnnualCreditReport.com for free credit reports (not scores)
How Long Does It Take to Improve?
Credit score improvement varies based on your situation:
- High utilization: Paying down balances can improve your score within 1-2 months
- Late payments: These stay on your report for 7 years, but their impact decreases over time
- Building from scratch: Establishing good credit typically takes 6 months to a year
- Recovering from major issues: Bankruptcy or collections can take years to recover from
Why Your Credit Score Matters
A good credit score can save you thousands of dollars over your lifetime:
- Lower interest rates: Better scores mean lower rates on mortgages, auto loans, and credit cards
- Better credit card rewards: The best rewards cards require good to excellent credit
- Easier apartment rentals: Landlords often check credit as part of applications
- Better insurance rates: Some insurers use credit-based scores for pricing
- Employment opportunities: Certain employers check credit as part of background checks