Credit Scores and Credit Reports: What You Need to Know
Your credit matters—it’s like your financial report card. Your credit score reflects your creditworthiness and helps lenders determine how likely you are to repay a loan. Beyond lending decisions, credit scores may also be reviewed by employers, landlords, and insurers as a measure of financial reliability.
The good news? Your credit score is not permanent. With the right knowledge and habits, there are steps you can take to improve it over time.
What Is a Credit Score?
A credit score is a three-digit number calculated using information from your credit report. It summarizes how responsibly you’ve managed credit in the past and helps predict how likely you are to repay borrowed money in the future.
Pro Tip:
The two most commonly used credit scoring models are FICO® and VantageScore®. Each model weighs credit factors slightly differently, which means your score may vary depending on which model is used.
Understanding Credit Score Ranges
Credit scores typically range from 300 to 850 and are often categorized as:
- Excellent
- Very Good
- Good
- Fair
- Poor
Higher scores generally indicate lower risk to lenders and may qualify you for better interest rates and loan terms.
Factors That Affect Your Credit Score
While scoring models vary, FICO and VantageScore generally consider the same core factors. Below are the most influential components and their approximate weight.
Note: Percentages may vary slightly depending on the scoring model.
1. Payment History (35%)
Your payment history reflects whether you pay your debts on time. This includes:
- Credit cards
- Retail accounts
- Installment loans (auto loans, student loans)
- Mortgages
Late or missed payments can significantly lower your score.
2. Credit Utilization (30%)
Credit utilization measures how much of your available credit you’re using. High balances—especially when cards are close to their limits—can negatively impact your score.
Best Practice: Aim to use no more than 30% of your available credit on each card.
3. Length of Credit History (15%)
This factor considers how long you’ve been using credit. A longer history of responsible use generally improves your score.
4. Credit Mix (10%)
Credit mix refers to the types of credit you use, such as credit cards, auto loans, or mortgages. Using different types of credit appropriately can positively affect your score.
5. New Credit Inquiries (10%)
When you apply for credit, an inquiry is added to your report:
- Hard inquiries (credit card or loan applications) can temporarily lower your score.
- Soft inquiries (checking your own credit or receiving pre-approved offers) do not affect your score.
How to Check Your Credit Score
You can access your credit score through several sources:
- Many credit card issuers and lenders provide free credit scores to customers.
- Nonprofit credit and housing counselors may also offer free access.
- Paid credit monitoring services often include scores and alerts, but be sure to read the fine print before enrolling.
What’s Included in a Credit Report?
Your credit report is a detailed snapshot of your credit history and is the foundation for your credit score.
Personal Information
Includes your name, current and previous addresses, partial Social Security number, date of birth, and employment information.
Accounts
Lists your credit accounts and key details such as:
- Opening dates
- Credit limits or loan amounts
- Current balances
- Payment history
Inquiries
Records requests for your credit history. Only hard inquiries affect your score.
Public Records
May include bankruptcies, judgments, or liens obtained from court records.
How to Get Your Credit Report
How Often?
- Review your credit report at least once per year.
- For closer monitoring, some people stagger reports—reviewing one bureau’s report every four months.
Where?
You are entitled to one free credit report per year from each of the three major credit bureaus through the official site:
AnnualCreditReport.com
Six Actions to Improve Your Credit
Improving your credit takes time, but consistent habits can make a meaningful difference.
1. Pay Bills on Time
Payment history is the single most important factor in your credit score. Even one late payment can have a negative impact.
2. Set Up Automatic Payments
Automatic payments help ensure bills are paid on time. Just be sure you have enough funds available to avoid overdraft fees.
3. Pay Down High Balances
Reducing high credit card balances lowers your credit utilization and can improve your score.
4. Dispute Errors on Your Credit Report
Review reports for inaccuracies such as incorrect late payments or outdated negative information (older than seven years).
5. Get Credit for Rent and Utilities
Programs like Experian Boost® or Fannie Mae’s Positive Rent Payment allow certain recurring payments—such as rent or utilities—to be included in your credit history.
6. Improve Your Credit Mix
If you only have one type of credit, adding another responsibly may strengthen your credit profile.
Key Credit-Building Takeaways
Aim High
A higher credit score can save you money. Even a small reduction in interest rates may mean paying thousands less over the life of a loan.
Review Regularly
Your credit report directly influences your score. Reviewing it regularly helps you catch errors early.
Take Action
Responsible habits—on-time payments, lower balances, and long-standing accounts—can improve your credit over time.
Build Healthy Financial Habits
- Make on-time payments a priority
- Monitor your credit activity regularly
- Avoid quick-fix credit repair promises
If you need help, consider reaching out to reputable organizations such as the National Foundation for Credit Counseling (NFCC). Be cautious of companies that charge upfront fees or promise to remove accurate negative information.
Understanding your credit score and credit report puts you in control of your financial future. With informed decisions and consistent habits, you can build stronger credit—and open the door to better financial opportunities.