Credit Score Fundamentals

What this guide covers

Your credit score is a number that summarizes how you have handled credit in the past. Lenders use it to estimate how risky it may be to lend you money.

This guide explains the main factors that influence your score and simple actions you can take to improve it.

Key factors in most credit scores

While different models exist, many use similar elements:

• Payment history – whether you pay on time is usually the most important factor.
• Credit utilization – how much of your available credit you are using, especially on credit cards.
• Length of credit history – how long your accounts have been open.
• Types of credit – a mix of installment loans (for example, auto loans) and revolving credit (credit cards).
• New credit – how often you apply for new accounts over a short period.

Practical steps to improve your score

• Pay at least the minimum on every account on time every month.
• When possible, pay more than the minimum to reduce balances faster.
• Try to keep your credit card balances well below your limits. Many experts suggest staying under 30% utilization, and lower is usually better.
• Avoid applying for several new credit accounts in a short time unless it is part of a specific plan.
• Review your credit reports regularly and dispute clear errors with the bureaus.

Common mistakes to avoid

• Ignoring small bills that can end up in collections (for example, medical or utility bills).
• Closing your oldest credit card without understanding the impact on your history and utilization.
• Maxing out credit cards just because you received a higher limit.
• Taking on new debt only to move a problem instead of solving it.