Understanding Your Credit Score

Published: March 2, 2021
Revised: December 20, 2021

Your credit is analyzed by financial institutions and lenders to determine how much money you may borrow for a loan or credit card. What does your score mean, and how do lenders—and even landlords and employers—use it to determine their decision? Here’s how.

How is My Credit Score Calculated?

Credit scores are based on your credit report—a history of what you’ve borrowed, how you’ve paid and more. Five factors are considered for your score:

Payment History (35%)

Pay your debts on time. This is the single most important factor of your credit score.

Amount Owed (30%)

A ratio of how much credit you’re using to how much overall revolving credit you have. Avoid using a lot of your available credit; this may signal to banks that you are at a higher risk for defaulting.

Length of Credit History (15%)

A ratio of how much credit you’re using to how much overall revolving credit you have. In general, a longer credit history will increase your score.

Credit Mix (10%)

The types of loan accounts you have, like credit cards, student loans, auto loans and mortgages. It’s beneficial to have different types of credit.

New Credit (10%)

The number of “hard” inquiries to your credit, which happen when you open or apply for a new credit account. Avoid opening several credit accounts in a short period of time; this can represent a greater risk to the lender (especially for those without a long credit history).

The higher your credit score, the better.

A high score indicates lower perceived risk to lenders.

Credit Score Ranges

800+ Exceptional
740-799 Very Good
670-739 Good
580-669 Fair
<580 Poor

Steps for Improving Your Score

Looking to improve your credit? Building stronger credit takes time. But with patience and a commitment to managing your credit over time, it can be done:

  1. Get your current credit report.
    Get your credit report to see where you currently stand and understand what potential lenders are seeing.
  2. Reduce the amount of debt you owe.
    Try paying off your highest-interest debt first.
  3. Start practicing your new healthy credit habits.
    Open new accounts sparingly, manage your credit card use, make payments on time and keep your revolving loan balances low to start seeing an improvement in your credit score.

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