Your credit score is one of the most important numbers in your financial life. Ranging from 300 to 850, this three-digit number reflects your overall creditworthiness—in other words, how trustworthy you appear to lenders when it comes to borrowing money and paying it back.
Credit scores are calculated using information from your credit report, which records your history of borrowing, repayments, and financial activity. Lenders, landlords, insurance companies, and sometimes even employers use this score to decide whether to trust you with loans, credit cards, rental agreements, and other opportunities.
How Credit Scores Are Calculated
Credit scoring models, such as the FICO® Score and VantageScore®, weigh different parts of your financial history to create your score. Here are the five main factors that impact your credit score and their relative importance:
| Factor | Weight | What It Means |
|---|---|---|
| Payment History | 35% | Tracks whether you pay bills and debts on time. Late or missed payments have the biggest negative impact. |
| Credit Utilization | 30% | Measures how much of your available credit you’re using. High balances can lower your score, while keeping usage under 30% helps improve it. |
| Length of Credit History | 15% | Considers how long your credit accounts have been active. Older accounts show stability and responsibility. |
| Credit Mix | 10% | Evaluates the variety of credit types you manage, such as credit cards, personal loans, auto loans, or mortgages. |
| New Credit / Inquiries | 10% | Looks at how often you apply for new credit. Too many hard inquiries in a short time can lower your score. |
Why These Factors Matter
- Payment History (35%): This is the single most important factor. Paying your bills on time proves to lenders that you’re reliable. Even one missed payment can stay on your credit report for years.
- Credit Utilization (30%): Using too much of your available credit signals financial stress. Experts recommend keeping your usage below 30% of your total credit limit to show healthy borrowing behavior.
- Length of Credit History (15%): The longer you’ve successfully managed credit, the more confident lenders feel. Keeping older accounts open, even if unused, can boost your score.
- Credit Mix (10%): Having different types of credit shows you can handle both revolving credit (like credit cards) and installment loans (like mortgages or student loans).
- New Credit (10%): Opening several new accounts quickly may raise red flags. Lenders want to see that you can handle credit responsibly before extending more.
What’s a Good Credit Score?
While the exact ranges can vary by scoring model, here’s a general breakdown:
- Excellent (750–850) – Access to the best rates and approvals.
- Good (700–749) – Strong chances of approval with favorable terms.
- Fair (650–699) – May qualify, but with higher interest rates.
- Poor (300–649) – Limited options, often requires secured cards or higher deposits.
Why Understanding Your Credit Score is Essential
Your credit score is more than a number—it’s your financial reputation. It can affect:
- Your ability to get approved for loans and credit cards.
- The interest rates you’ll pay (lower scores often mean higher costs).
- Your chances of renting an apartment or buying a home.
- Your eligibility for certain jobs or insurance premiums.
By learning what impacts your credit score and how it’s calculated, you can take proactive steps to build and maintain strong credit, ensuring long-term financial stability and opportunities.
