Credit Scores 101: A Beginner's Guide

Credit Scores 101 A Beginners GuideDo you know your credit score? As you get older, credit scores become more and more relevant. Why care about credit scores? Your score is an essential number to know because it can help you qualify for loans, get lower interest rates, purchase a car or home, get a credit card, rent an apartment, or even get a job.


What is a credit score?

Welcome to Credit Scores 101! Let's start with credit basics. A credit score is a number assigned to a person that indicates to lenders their capacity to repay a loan. It is determined by various factors. 


Can I have more than one credit score?

Yes, there are various types of credit scores that a single person can have. Credit bureaus collect information that helps determine your creditworthiness. Sometimes, the credit score ranges will vary depending on the type, but they tend to be close in number. There are five different ranges of credit scores. The low end of the scale are poor, and the high end is excellent. Here are the credit ranges for a FICO credit score:

  • Excellent: 800 to 850
  • Very Good: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: 300 to 579

Low credit score

What determines my credit score?

Different credit bureaus may consider different factors to be of greater importance when generating a credit score. Take note of the following items that factor into credit scores and incorporate positive financial habits into your everyday life.


Payment history

Payment history is critical to your credit score, and even the slightest slip up can cause your credit to take a hit. This is because payment history contributes to around 35% of your score. A positive payment history shows lenders your ability to not only repay the debt, but also repay the debt on time. If you don't make a payment because you can't afford it, your credit score will begin to reflect that.


Total amount owed

Your total amount of credit owed is another significant contributor. That's why it's important to manage your total debt and know your credit utilization ratio. This is a ratio that adds up all your credit card balances and divides that amount by your total credit limit. The lower the number, the better.


Length of credit history

Credit history doesn’t contribute to your score as much as payment history, but it still makes an impact. The length of your credit history, also called your credit age, is going to make up about 15% of your credit score. This is because the longer the history, the more experienced you likely are with managing credit. The length of your credit history will typically be made up of three different things. First is how long your accounts have been open. Second, how long specific accounts have been open, such as a student loan. Lastly, how long it has been since a particular account has been used.


Types of credit

As strange as it may sound, the different types of credit you have can play a role in your score too. This can range anywhere from revolving, installment, and open credit. Revolving credit is the most common and means you can borrow freely, but with a credit limit. Installment credits refer to loans that have a fixed, regular occurring payment schedule. Lastly, open credits, are similar to revolving credit because you can borrow up to a maximum amount. However, the borrowed amount must be paid back in full each month. This type of credit is less likely to show up on a person’s credit score.

Having a variety of credit accounts is always a good idea. Having a mix of accounts can show lenders that you are not only responsible with your credit cards, but also with paying off personal loans, auto loans, or another type of loan. If you continue to pay off your credit as planned, this may show lenders that you are less of a risk because you're able to successfully manage the different accounts. 


Number of hard inquiries

Applying for new accounts on a frequent basis can make you appear desperate to lenders. In other words, it may look like you weren't responsible with the credit you had, so now you need more. While they may grant it to you, it will likely decrease your credit score for a period of time. The fewer hard inquiries, the better.

High credit score 1FBUSA

What else should I know about credit scores?

Inaccurate information on your credit report can lower your score, so fix any inaccuracies as soon as possible. You do not need to carry a monthly credit card balance to build your credit history.


As a current or future credit cardholder, it's important to understand credit scores and how your financial habits affect them. If you're unfamiliar with any of the credit card terms used above, read our Credit Card Terminology Cheat Sheet.


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