Credit Score Guide
Everything you need to know about credit scores, how they work, and proven strategies to improve yours.
In This Guide
- What Is a Credit Score?
- Credit Score Ranges
- The 5 Factors That Affect Your Score
- How to Improve Your Credit Score
- Common Credit Score Myths
- How to Monitor Your Credit
What Is a Credit Score?
A credit score is a three-digit number that represents your creditworthiness—essentially, how likely you are to repay borrowed money. Lenders, landlords, and even some employers use credit scores to make decisions about you.
The most widely used credit score is the FICO Score, which ranges from 300 to 850. The higher your score, the better your credit, and the more likely you are to qualify for loans with favorable terms and lower interest rates.
Your credit score affects your ability to get credit cards, mortgages, auto loans, and even apartment rentals. A higher score can save you thousands of dollars in interest over your lifetime.
Credit Score Ranges
Credit scores are typically divided into five categories. Here is how they break down:
300-579
580-669
670-739
740-799
800-850
- Poor (300-579): Very difficult to get approved for credit. May need secured cards or credit-builder loans.
- Fair (580-669): May qualify for some credit but with higher interest rates.
- Good (670-739): Considered acceptable by most lenders. Access to decent rates.
- Very Good (740-799): Qualify for better-than-average rates on most products.
- Excellent (800-850): Best rates and terms available. Lenders compete for your business.
The 5 Factors That Affect Your Credit Score
Your FICO score is calculated using five key factors, each weighted differently:
35% Payment History
The most important factor. Paying bills on time is crucial. Late payments, collections, and bankruptcies significantly hurt your score.
30% Credit Utilization
How much of your available credit you are using. Keep this below 30%—ideally under 10%—for the best impact on your score.
15% Length of Credit History
How long you have had credit accounts. Longer history is better. Keep old accounts open even if unused.
10% Credit Mix
The variety of credit types you have: credit cards, auto loans, mortgages, etc. A healthy mix shows you can handle different credit types.
10% New Credit
Recent credit inquiries and new accounts. Too many applications in a short time can temporarily lower your score.
How to Improve Your Credit Score
Improving your credit score takes time, but following these steps consistently will help you see results:
1. Pay All Bills On Time, Every Time
Set up automatic payments or calendar reminders. Even one missed payment can significantly impact your score. If you have missed payments, get current and stay current—the impact lessens over time.
2. Lower Your Credit Utilization
Pay down credit card balances to reduce your utilization ratio. If your limit is $1,000, try to keep your balance under $300 (30%) or ideally under $100 (10%). Consider making multiple payments per month.
3. Do Not Close Old Credit Cards
Length of credit history matters. Closing old accounts shortens your average account age and reduces your total available credit, which can hurt both factors.
4. Limit New Credit Applications
Each hard inquiry can lower your score by a few points. Only apply for credit you truly need. When shopping for rates, do so within a 14-45 day window—multiple inquiries for the same type of loan are typically counted as one.
5. Check Your Credit Reports for Errors
Review your reports from all three bureaus (Equifax, Experian, TransUnion) at AnnualCreditReport.com. Dispute any errors you find—incorrect information could be dragging down your score.
6. Consider a Secured Credit Card
If you are building or rebuilding credit, a secured card requires a deposit but reports to credit bureaus like a regular card. Use it responsibly to build positive history.
7. Become an Authorized User
Ask a family member with good credit to add you as an authorized user on their account. Their positive history can boost your score—just make sure they use the account responsibly.
Make a payment 15 days before your statement closing date, then another 3 days before. This keeps your reported balance low even if you use your card regularly.
Common Credit Score Myths
Myth: Checking your credit hurts your score
Truth: Checking your own credit is a “soft inquiry” and does not affect your score. Only “hard inquiries” from lenders can impact it.
Myth: Closing old cards helps your score
Truth: Closing accounts can actually hurt your score by reducing your available credit and shortening your credit history.
Myth: You need to carry a balance to build credit
Truth: You do not need to pay interest to build credit. Paying your full balance each month is better for your finances and still builds credit.
Myth: All debts affect your score equally
Truth: Credit cards (revolving credit) have a larger impact on your score than installment loans like mortgages or auto loans.
How to Monitor Your Credit
Regular monitoring helps you track progress and catch errors or fraud early:
- AnnualCreditReport.com: Free reports from all three bureaus once per year
- Credit card issuers: Many now provide free FICO scores monthly
- Credit Karma: Free VantageScore monitoring and alerts
- Experian: Free access to your Experian report and FICO score
Ready to Take Action?
Check out our financial guides for more strategies to improve your financial health.