Credit
Your Credit Score, Explained Simply
A credit score is a three-digit number, usually between 300 and 850, that lenders use to estimate how likely you are to repay borrowed money. A higher number signals lower risk, which earns you lower interest rates, better credit cards, easier apartment approvals, and sometimes cheaper insurance. Over a lifetime, the gap between a "fair" and an "excellent" score can be worth tens of thousands of dollars in interest. The good news: the score isn't a mystery. It's built from five known ingredients, and once you understand them, improving it becomes a matter of habit.
The score ranges
| Range | Rating | What it usually means |
|---|---|---|
| 800–850 | Excellent | Best rates and terms available |
| 740–799 | Very good | Approved easily, strong rates |
| 670–739 | Good | Approved for most products at fair rates |
| 580–669 | Fair | Approved, but at higher interest rates |
| 300–579 | Poor | Hard to get approved; high rates or deposits |
The five factors that build your score
The most widely used scoring models weigh five categories. They're not equally important — the first two together make up about two-thirds of your score, so that's where to focus.
1. Payment history — about 35%
Whether you pay your bills on time is the single biggest factor. One payment that slips 30+ days past due and gets reported can drop a good score significantly and linger for years. The takeaway is blunt: never miss a due date. Set every bill you can to autopay at least the minimum, so a busy week never costs you points.
2. Amounts owed / credit utilization — about 30%
This is mostly about credit utilization: how much of your available credit you're using. If your cards have a combined limit of $10,000 and you're carrying a $4,500 balance, your utilization is 45% — high enough to hurt. Aim to keep it under 30%, and ideally under 10%. You don't have to carry a balance or pay interest to build credit; utilization is measured on the balance reported each month, so simply using a card and paying it off keeps this low.
3. Length of credit history — about 15%
Older accounts help, because a longer track record is easier to judge. This is why closing your oldest credit card can backfire — it can shorten your average account age and shrink your available credit at the same time. Generally, keep old, no-fee cards open and use them occasionally.
4. Credit mix — about 10%
Lenders like to see you can handle different types of credit — revolving accounts (credit cards) and installment loans (a car loan, student loan). You should never take on debt just for the mix, but a healthy variety, managed well, gives a modest boost.
5. New credit / inquiries — about 10%
Each time you apply for credit, a "hard inquiry" is recorded and can shave a few points off temporarily. Several applications in a short window look risky. Space out applications, and don't apply for credit you don't need right before a big one like a mortgage.
How to raise your score, step by step
- Check your reports for errors. You're entitled to free copies of your credit reports. Errors — accounts that aren't yours, wrong balances, a payment marked late that wasn't — are common and can be disputed for free.
- Bring all accounts current. If anything is past due, catching up stops the bleeding. The longer an account stays current afterward, the more the old damage fades.
- Lower your utilization. Pay down card balances, or pay them mid-cycle before the statement closes so a smaller number gets reported. Asking for a credit-limit increase (without spending more) also lowers the ratio.
- Stop opening accounts you don't need. Give inquiries time to age off and let your average account age grow.
- Be patient. Credit rewards consistency. Most positive changes show up over three to six months, and a damaged score recovers steadily as long as new habits hold.
Common myths, cleared up
"Checking my own score hurts it." False. Checking your own score is a "soft" inquiry and never affects it. "I need to carry a balance to build credit." Also false — carrying a balance just costs you interest; paying in full still builds history. "Closing a card helps my score." Usually the opposite, because it can raise utilization and cut your history.
Frequently asked questions
- How fast can I improve my score?
- Lowering utilization can show up within one or two billing cycles. Rebuilding from missed payments takes longer — months of on-time payments — but it does recover steadily.
- Does income affect my credit score?
- No. Your income isn't part of the score. Lenders may consider it separately when deciding whether to approve you, but it doesn't change the number itself.
- What's a good score to aim for?
- Crossing into "good" (670+) unlocks most products at fair rates; 740+ gets you close to the best available terms. Beyond about 760, extra points rarely change the rates you're offered.
- Will paying off a loan drop my score?
- It can dip slightly if it changes your credit mix or account age, but that's minor and temporary. Being debt-free is still the better place to be.