Understand Your
Credit Score

Improve your score and your life.

Credit is an essential part of a balanced financial life. Your credit score, or rating, needs to be at a certain level to get a loan, buy a house or sometimes even land a job. Higher credit scores often mean lower interest rates because higher scores indicate a degree of responsibility for paying the debt.

What do the numbers mean?

Your three-digit number sits somewhere on a scale from 300-850. This number is used to predict how you’ll repay your debts. Based on your history of financial decisions shown on your credit report, it tells lenders how much they should trust you. So, how can you work towards building your financial trustworthiness?

What makes up your credit score?

The first step in working towards financial freedom is understanding what factors go into determining your credit score and how much they have an impact.


Payment History

Making your payments on-time, over time, is one of the best things you can do for your credit score. Missing payments, or bad marks like a bankruptcy, can have a big impact. Over time these negative impacts will fade, but keeping up with your payments is essential.


Amount Owed

A good rule of thumb: stay under 35% of your available credit limit. If you owe more than this on any card, or across all cards, it could lower your score.

See How Much Credit You’re Using


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Length of Credit

The longer an account stays open, active, and in good standing, the better it is for your score. The age of your oldest account and the average age of your overall accounts impact your score. Opening a new line of credit could hurt your credit score but making your payments on time and keeping your “Amount Owed” below 35% will offset that impact.

Your score is weighed by time.

For example, the last 12 months of your credit history determines 40% of your score.


New Credit

Before you open a new line of credit, creditors review your credit report and an inquiry hits. These inquiries stay on your report for up to two years and affect your score in different ways. Soft inquiries are those you don’t have to authorize, like when a potential employer checks your credit as a part of a background check. These don’t hurt your credit score. Hard inquiries, which you must authorize, occur when a financial institution needs to make a lending decision. A single hard inquiry typically only affects your score by a few points, but a few of them at the same time could be a red flag for lenders.


Type of Credit

The different types of credit you hold — revolving, installment, or open — factor into your score. This factor isn’t as important as the others, so don’t run out and open a new loan to change up your mix. When making financial choices, consider the types of credit you’re using, but focus more on staying on top of your payments.

+Ways to Help Your Score

  • Pay off or pay down your credit cards
  • Do not close credit cards with positive credit history
  • Have more installment debt
  • Pay all debts on time (and in full, if possible)
  • Limit multiple new accounts in a short time
  • Acquire a solid credit history with years of experience
  • Check your credit report for errors
  • Try to stay under 35% of your available credit limit

-Ways to Hurt Your Score

  • Missing Payments
  • Using all your available credit
  • Applying for credit too frequently
  • Having more revolving debts than installment debts
  • Closing credit cards
  • Borrowing from finance companies

What’s Next?

Check your credit score. Don’t wait until you’re applying for a credit card or facing a big financial decision. Also, don’t be afraid of what you’ll learn. Knowledge is power. To take control of your financial life, you have to know your score. Request a free credit report once a year from each of the credit reporting agencies, Equifax, TransUnion, and Experian. This simple step tells you where you stand, and so you know how to move forward.

Get Your Free Credit Reports Today

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