Credit Scores Explained
What moves the number and why it matters. How FICO credit scores work, the five factors that move them, how to check your reports for free and simple habits that build good credit over time.
A card payment terminal: Basile Morin, CC BY-SA 4.0
What a credit score is
A credit score is a number that estimates how likely you are to repay borrowed money on time, based on your credit reports. Lenders, landlords and some insurers use it. In the US the most widely used model is FICO, introduced in 1989, with scores usually ranging from 300 to 850. VantageScore, created by the three main credit bureaus, uses a similar range.
The five factors
According to FICO, payment history counts for about 35 percent: paying on time matters most. Amounts owed, especially how much of your credit card limits you use, called utilisation, counts for about 30 percent. The length of your credit history is about 15 percent, and new credit applications and your mix of credit types are about 10 percent each.
Many experts suggest keeping card balances well below 30 percent of your limits, and lower is better.
Check your reports
In the US you can get free credit reports from Equifax, Experian and TransUnion at AnnualCreditReport.com, the site authorised by federal law. Check for accounts you do not recognise, wrong late payments or incorrect personal details, and dispute errors directly with the bureau. Checking your own credit does not hurt your score.
Key takeaways
Pay every bill on time, because payment history matters most. Keep card balances low compared with your limits. Check all three credit reports regularly and dispute mistakes. Build history slowly and avoid opening many new accounts at once. Good credit can mean lower interest rates on car loans and mortgages, which can save thousands of dollars over time.
Habits that build good credit
Set up automatic minimum payments so you never miss a due date. Pay cards in full when you can to avoid interest. Keep old accounts open if they have no annual fee, because they lengthen your history. Apply for new credit only when you need it. If you are starting from zero, a secured credit card or being added as an authorised user can help you build a history.
This page is general education, not financial, tax or legal advice. Everyone's situation is different, so check official sources and consider talking to a licensed professional before big decisions.
- A card payment terminal: Basile Morin, CC BY-SA 4.0
Text written by Biggest Bossman.
