What Is a Credit Score?
A credit score is a three-digit number that tells lenders how risky it is to lend you money. In the US, FICO scores range from 300 to 850. In the UK, the three main agencies (Experian, Equifax, TransUnion) each use their own scales. Regardless of the system, higher scores mean better terms on loans, credit cards, and mortgages.
The Five Factors That Determine Your Score
Your score isn't random. It's calculated from five weighted factors:
- Payment History (35%): The biggest factor. Paying bills on time every month is the most powerful thing you can do for your score.
- Credit Utilization (30%): How much of your available credit you're using. Below 30% is good; below 10% is excellent.
- Length of Credit History (15%): Older accounts help your score. This is why closing your oldest credit card can actually hurt you.
- Credit Mix (10%): Having different types of credit (cards, installment loans, mortgage) shows you can handle various obligations.
- New Credit Inquiries (10%): Applying for multiple new accounts in a short period can temporarily lower your score.
Myths That Need to Die
- "Checking your own score hurts it." No. That's a soft inquiry — it has zero impact.
- "Carrying a balance builds credit." Also no. Pay your full statement balance each month. Interest charges build nothing except debt.
- "Income affects your credit score." Your score doesn't know your salary. A minimum-wage worker with perfect payment history can have a higher score than a CEO who misses payments.
How to Improve Your Score Starting Today
- Set up autopay for at least the minimum payment on every account
- Request a credit limit increase (without spending more) to lower your utilization ratio
- Dispute any errors on your credit report — roughly 25% of reports contain mistakes
- Become an authorized user on a family member's long-standing account
Quiz Yourself
How well do you understand credit, debt, and personal finance? Try our Financial Literacy Quiz to find the gaps in your knowledge.