Your credit score is one of the most important numbers in your financial life. This three-digit number has a powerful influence on your ability to access credit and financing for major purchases like a home or car.

Lenders refer to credit scores to evaluate the risk of lending money or approving credit applications. Simply put, the higher your credit score, the lower the risk you seem to pose. As a result, higher credit scores can unlock better terms for loans and credit cards, such as lower interest rates.

Understanding what goes into your credit score and taking steps to build good credit is crucial for your financial health and accessing affordable credit options. This comprehensive guide will explain everything you need to know about credit scores, including what’s considered a good score, the different scoring models, and most importantly, how to realistically improve your credit over time.

What Exactly is a Credit Score?

A credit score is a numerical representation of your creditworthiness based on information in your credit reports from the three major consumer credit bureaus – Equifax, Experian, and TransUnion.

Credit scores are calculated using complex statistical models and algorithms that analyze the different pieces of information in your credit reports to estimate your ability to repay debt responsibly.

Some key credit history factors used to calculate your scores include:

  • Payment history – Do you pay your credit accounts on time? Late payments can lower scores.
  • Credit utilization – How much of your available credit limits do you use? High balances hurt scores.
  • Credit history length – How long have you had credit accounts? Newer credit lowers scores.
  • Credit mix – Do you have experience managing different types of credit accounts like installment loans and credit cards?
  • New credit applications – Too many new accounts in a short period indicate higher risk.

These and other factors are plugged into credit scoring models which generate a three-digit credit score typically ranging between 300 and 850. The higher the number, the lower the perceived risk.

Overview of Major Credit Scoring Models

While there are multiple credit scoring models, the most commonly used and well-known score among lenders is the FICO® Score, developed by Fair Isaac Corporation. FICO Scores range from 300 to 850.

The three major consumer credit bureaus also have their own scoring models which are variations of FICO:

  • Equifax uses the Equifax Credit Score which also ranges between 300-850.
  • Experian uses Experian Credit Score with a range between 330-830.
  • TransUnion uses TransUnion Credit Score ranging 300-850.

The scores from these models can differ because the credit bureaus may have different information being reported to them. However, they generally tell the same story about your creditworthiness and all use similar logic and ranges. Checking all the models periodically gives you a complete view of your credit situation.

What is Considered a Good Credit Score?

So what exactly is a good credit score that will get you approved for credit and financing?

While every lender has their own standards for evaluating creditworthiness, here are the general credit score ranges:

  • Exceptional Credit: 800-850 – You will qualify for the best rates and terms from lenders with scores in this range and up. Less than 1% of consumers have credit scores over 800.
  • Very Good Credit: 740-799 – Most lenders consider scores in this range excellent. You’ll qualify for competitive interest rates from lenders with scores above 740. Only about 15% of the population have credit scores over 740.
  • Good Credit: 670-739 – You are considered a low-risk borrower with good credit in this range. Most lenders will approve credit applications with scores above 670, but may not offer the most favorable rates. Approximately 25% of people have credit scores above 700.
  • Fair Credit: 580-669 – Scores in the fair range are below good standards for most lenders. You may still get approved but will pay higher interest rates. Avoid scores below 620 if possible. About 25% of the population have credit scores between 580-669.
  • Very Poor Credit: 300-579 – This range indicates serious credit issues like bankruptcies and collections. It will be very hard to get approved for new credit with scores under 580 which is considered subprime. Almost 35% of consumers fall in the very poor credit range unfortunately.

As you can see, a credit score of 670 or higher is generally considered good by most mainstream lenders. However, you’ll want to aim for 740+ for the best rates. The higher the better when it comes to credit scores and interest rates.

Major Factors that Impact Your Credit Scores

Now that you know how credit scores are calculated and what ranges are ideal, let’s look at the main factors that influence your scores. Understanding these key criteria that shape your credit scores is crucial for being able to improve them over time.

Payment History

How reliably you’ve paid your past credit accounts and bills is the most influential factor, impacting approximately 35% of your FICO score.

Payment history measures how frequently you make payments on time versus missing payments or paying late. Late payments, missed payments, collections, bankruptcies, foreclosures, judgments etc. can severely damage your scores.

Tips to build positive payment history:

  • Pay all credit accounts and bills by the due date and never miss payments. Set up autopay or payment reminders if needed.
  • If you missed payments, get current and make on-time payments consistently. Old late payments matter less as new positive history builds.
  • Avoid debt management programs or consolidation loans if you can continue paying normally. The modified terms may be considered negative.
  • Allow time for negative marks like collections and bankruptcies to age on your reports. Their damage lessens over time.

Credit Utilization

This measures how much of your available revolving credit limits you are using at one time, especially on credit cards. Owing too much credit card debt relative to your total limits can negatively impact around 30% of your score.

High credit utilization signals higher risk since it seems like you depend heavily on credit cards to get by. Try to keep individual card balances below 30% of the credit limit and total utilization under 10% for optimal scores.

Tips for lowering credit utilization:

  • Pay down card balances before the statement closing date to keep reported balances low. Make multiple smaller payments instead of one lump sum.
  • Request credit limit increases judiciously every 6-12 months if you have positive payment history. Higher limits mean lower utilization.
  • Transfer balances from maxed out cards to ones with available space to distribute debt evenly. Apply for cards only if needed.
  • Avoid charging card balances up to the max. Leave buffer room below 30% if possible in case of emergencies requiring credit.

Credit History Length

The average length of your credit accounts and total history makes up around 15% of the FICO algorithm. In general, the longer positive history you have, the better your scores.

Lenders prefer to see experience managing loans and credit cards responsibly over many years. Consumers with new credit profiles less than a year old tend to be riskier in scoring models. Avoid opening and closing accounts quickly. Keep older active accounts if in good standing.

Ways to build long credit history:

  • Keep old credit card accounts open instead of closing no longer used ones. The combined length helps your credit age.
  • Allow negative items to age without continuing issues. Settling collections or defaulted accounts won’t remove them but shows progress.
  • Become an authorized user on a spouse or family member’s old account if they have excellent history. Their credit age gets added to yours.
  • Open new credit accounts only as needed for major purchases. Too many new accounts can lower average age.

Credit Inquiries

When prospective lenders check your credit report to evaluate a new credit application, it results in a hard inquiry being recorded on your report. An excessive number of inquiries in a short period can suggest higher risk to scoring models and make up about 10% of your score.

Too many applications for new credit make lenders wonder if you are desperately seeking credit or cannot manage it responsibly. However, rate shopping for a mortgage or auto loan within a short window is treated as one inquiry. Avoid applying for financing unless seriously interested and likely to qualify. Limit new credit accounts to only essential ones.

How to minimize credit inquiry impact:

  • Only allow credit checks from lenders when seriously considering a loan or card for a major purchase. Do not give any website permission for inquiries unless applying for their products.
  • Consolidate rate shopping for a specific loan to a 14-30 day window so multiple checks are grouped and count as one inquiry.
  • Note that soft credit inquiries from your own checks or background checks by employers are unimportant and do not affect scores. Only hard inquiries from lenders you’ve applied to matter.
  • Allow inquiries to gradually age and fall off your report. Recent ones impact scores more strongly than older inquiries.

Credit Mix

Scoring models consider the variety of different credit account types in your profile, such as mortgages, installment loans, credit cards etc. A healthy mix demonstrates experience managing### Credit Mix

Scoring models consider the variety of different credit account types in your profile, such as mortgages, installment loans, credit cards etc. A healthy mix demonstrates experience managing different types of credit. However, this only accounts for about 10% of your score.

It’s generally ideal to have at least two open installment loans like car loans or student loans along with two or more open revolving credit cards in good standing. This mix shows you handle both long term borrowing that’s gradually repaid along with managing credit card limits responsibly.

However, it’s certainly not essential to have all types of credit. Many people have good scores with credit cards alone used wisely. Avoid opening accounts just for the sake of mix diversity. Apply for accounts only as your needs evolve.

How to strategically build credit mix:

  • Open your first credit card and use it lightly while making all payments on time to start establishing positive history. After 6 months of responsible use, apply for a second card.
  • Consider taking out a credit building installment loan when you need a major purchase like furniture rather than putting it on a credit card. The fixed repayments steadily build your credit profile.
  • Once you have a solid 2 years of positive history with credit cards and installment loans, you may qualify for a mortgage, which adds significant mix diversity.
  • Try not to open too many new accounts close together. Add credit products gradually over many years to age simultaneously.

Effective Strategies to Improve Your Credit Score

Now that we’ve covered what goes into your credit score and the key influencing factors, let’s discuss realistic strategies to start improving your credit.

Dramatically raising scores takes diligent effort and patience over time. However, with focused effort on building positive credit patterns, you can see an improvement in as little as 6 months. Here are some of the most effective ways to boost your credit score over time:

Pay All Bills and Credit Accounts On Time – Set up autopay and reminders if necessary to avoid missed or late payments, which severely lower scores. Pay at least the minimum required payment by the due date every month for each account. Do not take on debt you realistically cannot pay back on time.

Keep Credit Card Balances Below 30% of Limits – Carrying high balances close to your limits hurts credit utilization and scores. Pay off cards frequently and make multiple smaller payments during the month if needed to keep reported balances under 30% before the statement closes.

Become an Authorized User on Someone’s Card – Ask a family member with a long positive credit history to add you as an authorized user on their credit card. Their on-time payments get added to your history improving your scores. But first confirm they are responsible users before tying your report to theirs.

Request Strategic Credit Limit Increases – Periodically requesting higher credit limits after 6-12 months of positive history helps lower your utilization. But avoid seeking multiple increases close together that result in hard inquiries lowering your score.

Add New Credit Lines Gradually Over Time – Open new credit accounts judiciously over a long period. Adding too much new credit close together can seem risky and lower your average account age. Wait at least 6 months between new accounts and only open ones you need.

Correct Any Mistakes in Your Credit Reports – Dispute negative items that are reported inaccurately or no longer applicable with the credit bureaus for removal. Pay off collections accounts that you can. This improves your scores.

Monitor Your Credit Reports and Scores – Keep an eye on your credit reports from and FICO or other scores every few months. This helps you catch issues early before they escalate and lower your scores further. Monitoring also lets you gauge improvement.

Let Your Credit Profile and Scores Mature – There are no quick fixes to bad credit. Rebuilding takes diligent effort and patience. But responsible use of credit cards and loans over time increases your scores noticeably in 6-24 months. Keep credit activity minimal and positive.

Key Takeaways: Summary of Main Points

  • Your credit scores influence your ability to access credit and financing for major purchases by estimating your risk level to lenders. Scores above 700 are considered good.
  • Payment history, credit utilization, and history length have the largest impact on your credit scores. Maintain positive patterns in these areas.
  • Keep credit card balances low, pay all bills on time, add new credit gradually, and correct report errors to improve your scores.
  • Rebuilding credit takes time. With responsible actions, you can see your scores start to improve within 6 months to a year. Be patient and persistent.

Frequently Asked Questions (FAQs)

Q: How can I quickly raise my credit score by 100 points or more?

A: There are no legitimate quick fixes to drastically increase your credit score within a short period. Significant score improvements take at least 6-12 months of consistent positive credit behaviors like making on-time payments, lowering balances, and avoiding new inquiries. Gradual responsible use of credit over time yields the best results.

Q: Does checking my own credit report or score decrease my scores?

A: No, soft inquiries from checking your own credit reports or scores do not impact your scores at all. Only hard credit inquiries from lenders when applying for new credit get factored into your scores. So feel free to check your credit reports and FICO or other scores yourself.

Q: If I’m denied credit, will that hurt my credit scores?

A: Credit application denials by themselves don’t lower your scores directly. However, the hard inquiry from the lender’s credit check can temporarily impact your scores a few points for up to a year. Too many denied applications indicating credit seeking behavior may indirectly influence certain scoring factors over time.

Q: Can I remove negative information from my credit reports?

A: You cannot remove accurate, timely negative information from your credit reports like late payments, collections etc. However, you can dispute inaccurate, outdated, or unverifiable information for removal. Legitimate negative items will automatically fall off your report after 7 years from the date of first delinquency.

Q: Will closing old credit card accounts help my credit score?

A: Generally, it’s best to keep old credit card accounts open instead of closing them if they are in good standing. The average age of accounts factors into your scores, and closing old cards lowers your total credit history length. However, close any accounts that have annual fees if you no longer use them.


I hope this comprehensive guide covering all the essential details about credit scores provides you immense value in your financial life. Understanding the nuances of how your credit score works along with prudent strategies to build your score over time can make accessing affordable credit much easier. Be sure to monitor your credit reports frequently, develop consistently positive habits, and let your credit profile mature with time.