Tips for Understanding Your Credit Score

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A person checks their credit score on their phone

Your credit score represents a lifetime of financial decisions and has the power to impact your employment, housing, loan approvals, and more. Even though it’s just a 3-digit number, your credit score can be surprisingly difficult to understand. Here are 5 tips to help you better comprehend your credit score.

1. Know Where Your Score Ranks

For lenders, a credit score is a measure of your ability to repay your loans. Your credit score will range somewhere between 250 and 900, and the higher the score, the better. According to FICO®, credit scores can be viewed on a numerical scale from poor to excellent:

  • Poor: 250-580
  • Fair: 580-669
  • Good: 670-739
  • Very Good: 740-799
  • Excellent: 800-900

2. Know How a Credit Score is Calculated

There are many different types of credit scores, but the most common is the FICO® Score. According to FICO®, there are five main factors that go into the credit score equation, and each factor is weighted differently:

  1. Payment History: Your track record for repaying loans on time accounts for 35% of your credit score calculation, according to FICO®.
  2. Credit Usage: The amount of used credit compared to available credit, sometimes called a credit utilization ratio, makes up 30% of your credit score, according to FICO®. A lower credit utilization ratio is better for your credit score.
  3. Credit Length: The age of your oldest and newest credit accounts are averaged to determine your overall credit age (the older your credit age, the better). This accounts for 15% of your credit score, according to FICO®.
  4. Credit Mix: The number of different types of credit that you have, including car loans, student loans, credit cards, home loans, and more, accounts for 10% of your credit score, according to FICO®. A diverse mix of credit types is usually good for your credit score.
  5. New Credit: The number of hard inquires and credit accounts you have opened recently accounts for 10% of your credit score, according to FICO®.

3. Know the Factors that Influence Credit Score Fluctuations

Your credit score is constantly changing, based on your financial decisions and changes to the factors that affect your credit score calculation. In general, there are four factors that can cause your credit score to fluctuate:

  • Missed Payments: With payment history making up 35% of your credit score, it should come as no surprise that missing a payment can cause significant change to your score. At the same time, a history of on-time payments can improve your credit score. So it’s always very important that you make at least your minimum payment.
  • Maxing Out Credit Accounts: When you use all your available credit, it can signify to lenders that you are financially overextended and at risk for defaulting on your loan obligations. Keeping your credit utilization lower can often help your score.
A person checks their credit score on their phone
  • Opening Multiple Credit Accounts in a Short Amount of Time: Every time you apply for a loan, your lender will make a hard inquiry on your credit account. Too many of these inquiries within a short period doesn’t reflect well on your financial situation and can impact your credit score.
  • Defaulting: When you fail to repay a loan, or miss too many payments, your lender may foreclose, repossess, charge-off, or settle your account, depending on the type of loan. Defaulting on a loan can negatively impact your credit score for up to a decade. 

4. Know How Your Credit Score Impacts Real Life

Credit scores can feel theoretical, at times, but they have the potential to impact your everyday life in a number of ways. Every time you apply for a loan, your lender will check your credit score to predict how responsible you will be at repaying your obligations. Similarly, some landlords, utility companies, and employers will check your credit score as a way of making assumptions about your character and dependability. If you’re good at repaying your loan obligations, you may be more likely to pay your rent and utility payments on time and be a dependable employer.

5. Know How to Check Your Credit Score

Because your credit score plays such a big role in so many aspects of life, it’s important to track it over time to ensure that you’re reaching your credit goals. It’s also important to review your credit score and credit report for errors, which may negatively impact your overall score, through no fault of your own. You can check your credit score and receive a free credit report once a year through each of the three main credit bureaus—Equifax, Experian, and TransUnion. You may also be able to check your credit score more consistently through your financial institution.


Don’t be intimidated by the complexity of your credit score. Take simple steps to understand your score as you work to build or rebuild credit and stay on track with your overall financial goals.