What Is Personal FinanceA credit score is a number that summarizes how risky it is to lend you money, based on your past borrowing behavior. Lenders use it to decide whether to approve you and what interest rate to charge.
What makes up the score
Exact formulas vary by scoring model, but the same broad factors matter almost everywhere:
- Payment history: do you pay on time? This is usually the single biggest factor.
- Credit utilization: how much of your available credit you use. Maxed-out cards hurt your score even if you always pay on time.
- Length of credit history: older accounts in good standing help.
- Credit mix: having a mix of account types (credit card, loan) helps slightly.
- New credit and hard inquiries: applying for a lot of credit in a short time dings your score temporarily.
The fastest things you control
- Never miss a payment: even one 30-day late payment hurts your score noticeably. Autopay for at least the minimum is a common safeguard.
- Keep utilization low: a common rule of thumb is under 30% of your available credit, and lower is better. Paying a balance down before the statement closing date, not only the due date, helps, since issuers often report utilization based on the statement balance.
- Don't close your oldest card unless it has a fee you can't justify. Closing it shortens your average credit history and raises your utilization on remaining cards.
What doesn't help as much as people think
Checking your own score doesn't hurt it (that's a "soft" inquiry). Carrying a small balance instead of paying in full doesn't help your score and costs you interest. Paying in full each month serves both your score and your wallet.
A good credit score isn't a goal in itself. It's a tool that gets you better loan and credit card terms. The behaviors above, paying on time and keeping utilization low, are also sound money habits on their own, which is why they help the score too.