Credit Score Fundamentals

Key concepts

• Credit score: a three-digit number (often between 300 and 850) that summarizes your credit risk.
• Credit report: a detailed record of your borrowing history, including accounts, balances and payment history.
• Credit bureau: companies such as Equifax, Experian or TransUnion that collect and store credit information.
• Hard inquiry: a lender's check of your credit report when you apply for new credit; may have a small, temporary impact on your score.

How credit scores are generally calculated

Exact formulas vary by scoring model, but most credit scores are influenced by similar categories:

• Payment history: whether you pay bills on time; late or missed payments are one of the biggest negative factors.
• Credit utilization: how much of your available revolving credit (for example, credit cards) you are using. Lower is usually better.
• Length of credit history: how long your accounts have been open and active.
• Types of credit: a mix of installment loans (like auto or mortgage) and revolving accounts (like credit cards) can be viewed positively.
• New credit: opening several new accounts in a short period can be seen as higher risk.

How your credit score affects borrowing

• Interest rates: higher scores usually qualify for lower interest rates, which can save money over the life of a loan.
• Approval decisions: lenders may use your score as one factor in deciding whether to approve a mortgage, auto loan, personal loan or credit card.
• Loan terms: stronger credit can sometimes mean higher limits, lower fees or more flexible terms.
• Beyond loans: some landlords, insurers and utility companies may review your credit when you apply for housing, insurance or service.

Habits that can help improve your score over time

• Pay at least the minimum due on time, every month.
• Try to keep your credit card balances well below the limit— many people aim for under 30% utilization.
• Review your credit reports regularly and dispute any errors with the credit bureaus.
• Avoid opening several new accounts at once unless you have a clear reason and plan.
• If you are rebuilding credit, consider using a secured card or becoming an authorized user with someone who manages credit responsibly.

If your score is currently low

A low score does not mean you are stuck forever. Most negative marks fade with time, and positive habits can slowly outweigh past problems. Focus on:

• Stopping the damage: avoid new late payments and fees.
• Creating a realistic budget so you can make payments consistently.
• Talking with your lenders or a reputable nonprofit credit counselor if you are struggling to keep up.