A credit score is like a report card that helps banks and credit card companies make decisions about lending you money. The most commonly used credit scores are FICO® Score and VantageScore. They run from 300 to 850.
Benefits of a good credit score
A good credit score can mean better interest rates—which can save you money.
Here’s how your credit score is calculated.
1. Payment History
35% of your credit score comes from how well you keep up with your bill payments.
To keep your credit score healthy, pay your bills on time—every time. And if you can’t pay in full, it’s important to pay at least the minimum. Just remember you’ll pay interest on the balance.
2. Credit utilization
30% of your credit score is determined by how much credit you use from the total amount you have. When you use a lot—or all—of the credit you’re given, it can indicate you’re financially overextending yourself. This might make lenders hesitate to give you more credit in the future.
3. Length of credit history
15% of your credit score is determined by the length of time you’ve had your accounts. Lenders want to know how long you have been financially responsible with your accounts. Don't rush to close old cards or account as it may impact your credit score.
4. Credit mix
10% of your credit score is determined by the different kinds of debts and loans you have—and more importantly, how well you're managing to pay them off.
It's what you juggle for credit cards, school loans, car loans, and whatever else—and how you take care of all those accounts.
5. New credit
10% of your credit score is determined by how often you apply for new credit.
When you apply for a new line of credit, an "inquiry" goes on your credit report. Be aware that different inquiries can mean different things. Hard inquiries go on your report when lenders check your credit for a loan application. They may temporarily lower your score. Soft inquiries do not affect your credit and are usually for pre-approval.
Managing these 5 factors will help you keep your credit score in check. Checkout this resource to learn ways to improve your credit score.