Understanding Your Credit Score

Knowing the ins and outs of credit can lead you to a healthier score.

What is a credit score?

There are three major credit bureaus (Experian, TransUnion and Equifax) that gather information from banks, retail stores, utilities and other companies regarding your payment history that they then use to determine your score. Lenders use that score to evaluate your ability to repay debt and how much of an investment risk they're willing to take with giving you a loan. The lower your score, the higher your repayment risk—you could potentially either not obtain a loan or get one with a high interest rate.

Each bureau has different ways of calculating scores—so yours may vary—however they all range from 300 to 850. Although each lender determines the risk they're willing to accept, generally, a good score is considered 660 or above, but you'll likely get the best rates at 760 or higher.

What factors affect it?

Your score is based on five points.

  • Payment history (35%). Do you pay your bills on time? Paying bills late has a negative effect on your score—the later you pay, the worse the score. If you've been sent to collections or have had a bankruptcy or foreclosure, it's a red flag for other lenders to lend to you.
  • Debt (30%). You pay on time, but how much debt do you have? This measures how much debt you have compared to your credit limit. If you're maxed out on available credit but have a $0 balance, it may affect your score negatively.
  • Credit history (15%). How long have you been using credit? The longer you've had an active account, the better your score.  However, a short history with on-time payments can be fine, too.
  • New credit (10%). How many accounts have you applied for lately? Lenders typically do an inquiry to check your credit information which causes a small, temporary decline in your score.
  • Types of credit (10%). What types of debt do you have? A mixture of different accounts—such as credit cards, store accounts or a mortgage—is favorable to your score.

Some common misconceptions of what affects your score that actually don't are age, income, bank balances, getting credit counseling and checking your own credit.

How can I find out my credit score?

Under the Fair and Accurate Credit Transactions Act (FACT Act), the three major credit reporting companies are required to provide you a free copy of your credit report each year, however there may be a fee for additional ones. If you're a victim of identity theft, you may be eligible to receive additional free credit reports.

To obtain your free credit report, visit AnnualCreditReport.com(opens in a new tab) or call 877-322-8228.

To contact the credit bureaus directly, visit or call:

Why is it important to have a good score?

Lenders check your score whenever you apply for a loan to determine if you're eligible for a loan and at what interest rate. But it's not only banks. Credit card companies, insurance agencies, landlords and even employers check your credit score.

You might think if you have no credit cards or loan accounts that you have no credit score or a good credit score. However, if you don't have any supporting data of how you pay debt, that makes you a high risk for lenders—you may actually have a low score.

What if I have a bad score? How can I improve it?

Raising your score takes time but really pays off in the long run. There are things you can do today to start improving your score, but it's best to allow 3 to 6 months to work on it before you need to make a large purchase.

Here are some tips that may help you improve and maintain a good score:

  • Check your credit report. Start by making sure there are no errors on your credit report—an incorrectly reported late payment can reduce your score 60 to 100 points. Reports may also include information on what areas you need to work on to improve your score faster.
  • Pay bills on time. This is one of the biggest factors for improving a credit score. Make it easy by setting up payment reminders or use automatic drafts through your bank or lender.
  • Reduce your debt. Work on paying off your highest balances first and pay more than the minimum due, if possible. If you can, stop using high-interest credit cards.
  • Avoid new credit card purchases and card applications. By keeping your balances low, you'll improve your credit utilization that can have a negative impact on your score. It's also important not to close loan accounts and credit cards because credit age helps your score.
  • Get credit counseling. If you need help, there are agencies available to assist you. Start with the National Foundation for Credit Counseling(opens in a new tab) to find a qualified counselor.

Who do I contact if there are errors on my credit report?

Your credit history may change frequently so it's important to monitor it on a regular basis. This helps you ensure that no one has stolen your financial identity or established fraudulent credit in your name. Whenever you see unusual items in your report, you should contact the credit bureaus immediately.

If you've noticed inaccuracies on your credit report, you'll need to contact the credit bureau that released the report with a formal request that the errors be corrected along with proof of the inaccuracy. Bureaus have 30 days upon receipt to investigate and act on your request.

The bottom line

If you pay your bills on time, keep your account balances low and use credit wisely, you'll be better positioned to get a loan with a competitive rate. Alternatively, if you need to make some improvements to your credit score, allow sufficient time before applying, so that any changes can take effect.

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