Now that you know what a credit report is and why it’s important, it’s time to focus on the number that most lenders, landlords, and sometimes even employers look at first — your credit score.
Think of your credit report as the story of your financial behavior, and your credit score as the grade you get based on that story. Just like a GPA in school, a higher credit score means you’ve built a track record that lenders trust.
The most widely used score is the FICO® Score, which ranges from 300 to 850. Here’s the breakdown:
| Score Range | Rating |
| 800–850 | Excellent |
| 740–799 | Very Good |
| 670–739 | Good |
| 580–669 | Fair |
| 300–579 | Poor |
A higher score can mean lower interest rates, better loan terms, and a smoother approval process for apartments, jobs, and even insurance policies. A lower score doesn’t mean you’re doomed — but it can cost you thousands over time in higher borrowing costs.
Why Lenders Care About Credit Scores
Lenders aren’t just deciding whether to approve your application; they’re deciding how risky you are as a borrower. Your score is a quick way for them to estimate the likelihood you’ll pay back what you borrow — on time, in full.
For example:
- High score (740+): You’re seen as low risk. You may get the lowest interest rates and highest credit limits.
- Mid-range score (670–739): You’re considered an acceptable risk, but may not get the best rates.
- Low score (under 580): Lenders may deny your application or approve it with very high interest rates.
The 5 Credit Score Factors
Your FICO® Score is calculated using five weighted categories. Each one plays a different role in your score, and understanding these can help you take control of your credit.
1. Payment History – 35% of Your Score
Your payment history carries the most weight. Lenders want to know if you pay your bills on time — every time.
- Positive Impact: Consistently paying on or before the due date builds trust and a strong score.
- Negative Impact: A single missed or late payment can stay on your credit report for up to 7 years.
Examples of what’s included:
- On-time payments for credit cards, loans, mortgages, and other accounts.
- Late payments (30, 60, or 90+ days past due).
- Serious delinquencies, like accounts sent to collections or defaults.
Tips to Maintain a Perfect Payment History:
- Set up automatic payments for at least the minimum due.
- Use calendar reminders or budgeting apps.
- If you can’t pay the full amount, always pay something on time — a partial payment is better than missing the due date entirely.
💡 Pro Tip: Even one missed payment can drop your score significantly, especially if you have a short credit history. Protect this category at all costs.
2. Credit Utilization – 30% of Your Score
Credit utilization is the percentage of your total available credit that you’re currently using, especially on revolving accounts like credit cards.
Formula:
Credit Used ÷ Credit Limit = Utilization %
Example: If your credit limit is $5,000 and you’re using $1,000, your utilization is 20%.
Why it matters:
- High utilization signals to lenders you may be overextended, which could make you a higher risk.
- Low utilization shows you can manage credit responsibly without relying heavily on it.
Best Practices:
- Keep utilization below 30%, and ideally under 10% for maximum score benefit.
- Pay down balances before your statement date (not just the due date) to lower the reported amount.
- Ask for a credit limit increase — just don’t increase spending along with it.
3. Length of Credit History – 15% of Your Score
This measures the age of your credit accounts. Longer history generally means a higher score because it shows a stable track record.
Factors include:
Tips for a Strong History:
- Keep your oldest credit card open, even if you rarely use it.
- Avoid opening too many accounts in a short time — this lowers your average account age.
- If you’re new to credit, consider becoming an authorized user on a trusted person’s account to inherit their account’s age (without taking on their debt).
4. Credit Mix – 10% of Your Score
Lenders like to see you can handle different types of credit.
Two main types:
- Revolving credit – Credit cards, lines of credit (you can borrow, repay, borrow again).
- Installment credit – Mortgages, auto loans, student loans (fixed payments over time).
A healthy mix might include:
💡 Note: You don’t need to rush out and get every type of loan — your mix improves naturally as your life and financial needs grow.
5. New Credit / Inquiries – 10% of Your Score
When you apply for new credit, lenders perform a hard inquiry, which can temporarily lower your score by a few points.
- Too many inquiries in a short time can signal risk, especially if you don’t have a long history.
- Soft inquiries (like checking your own score or pre-approval checks) don’t affect your score.
Tips to Manage Inquiries:
- Space out credit applications by at least 6 months.
- Rate shop for loans within a short window (14–45 days) so inquiries count as one.
- Use pre-qualification tools to gauge approval odds before applying.
Bringing It All Together: The Credit Score Formula
| Factor | Weight in Score | Focus On |
| Payment History | 35% | Pay on time, every time |
| Credit Utilization | 30% | Keep balances low |
| Length of Credit History | 15% | Keep old accounts open |
| Credit Mix | 10% | Maintain variety over time |
| New Credit / Inquiries | 10% | Limit applications |
Improving Your Credit Score: A Step-by-Step Plan
- Make on-time payments for every bill, no matter how small.
- Reduce balances on credit cards to lower utilization.
- Keep old accounts active and avoid closing your oldest credit card.
- Build variety naturally — don’t open unnecessary accounts.
- Apply for credit only when needed to limit hard inquiries.
Common Credit Score Myths
- Myth: Checking my own credit lowers my score.
Truth: It’s a soft inquiry and has no impact. - Myth: Carrying a balance improves my score.
Truth: Paying in full each month is better for your score and your wallet. - Myth: Closing unused cards improves my score.
Truth: It can hurt your score by lowering your available credit and shortening your history.
Quick Quiz: How Credit Smart Are You?
Test your knowledge:
- What’s the largest factor in your FICO® Score?
- True or False: A hard inquiry always drops your score by 50 points.
- What’s the ideal range for credit utilization?
- Does becoming an authorized user affect your length of credit history?
- True or False: Closing your oldest account is a great way to boost your score.