A credit score can shape your financial future. Whether you’re trying to get approved for a mortgage, qualify for a car loan, or apply for a credit card, this three-digit number often determines your outcome. It can also impact the interest rates you’re offered, the size of your down payment, or whether a landlord accepts your rental application.
But how exactly does a credit score work? Where does it come from? And most importantly, how can you improve it?
In this guide, we’ll walk through how credit scores are calculated, why they matter, and how to take control of your own credit profile, step by step.
A credit score is a number that helps lenders predict how likely you are to repay money that you borrow. It’s based on what is in your credit report, including the amounts you owe, how long you’ve had credit, and whether you pay your bills on time. Scores typically range from 300 to 850. The higher the number, the better your credit looks to lenders.
Learn more about Credit Scores from the FTC.
Your credit score can influence many aspects of your financial life. A good score can help you:
On the other hand, a low score can limit your access to credit or cost you more over time due to higher rates and stricter terms.
The FICO score is the most widely used credit scoring model in the United States. Created by the Fair Isaac Corporation, it’s used by 90% of top lenders to make lending decisions. Your FICO score is calculated using data from your credit reports provided by the three main credit bureaus: Equifax, Experian, and TransUnion.
Lenders trust the FICO model because it’s consistent, predictive, and backed by decades of research into consumer credit behavior.
Find out more from myFICO.com.
FICO scores are based on five key categories:
Each factor contributes to your overall score, and small improvements in any category can help raise your number over time.
While the FICO score is the most common, it’s not the only model. Credit scoring models like VantageScore also evaluate your credit risk, but they weigh certain factors differently. This can lead to slightly different numbers depending on which model or credit bureau is providing the data.
Because of these differences, it’s normal to have more than one score at any given time. That’s why it’s important not to focus on a single number, but rather the general range your score falls into.
You won’t have a score the moment you open your first credit account. To generate a FICO score, you must have at least one account open for six months, and it must be reported to a credit bureau.
Some other models, like VantageScore, may produce a score more quickly—sometimes in as little as one to two months—but FICO remains the model most lenders use.
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Your credit report is a detailed record of your borrowing history and repayment behavior. It includes:
Credit reports do not include your income, bank balances, or demographic information like race, gender, or marital status.
Your credit report is maintained by one or more of the three major credit bureaus:
These agencies collect information from lenders, update it regularly, and provide it to other businesses who request your report, such as banks, credit card companies, insurers, or landlords.
Each bureau may receive slightly different information, so it’s important to check all three reports at least once per year.
Under federal law, you’re entitled to one free credit report every 12 months from each of the three bureaus. You can request yours through the only website approved by the U.S. government: AnnualCreditReport.com.
Checking your own report is considered a soft inquiry and will not affect your score.
In addition to free credit reports, many companies offer free credit scores as a perk for being a customer. These may be updated weekly or monthly and are useful for monitoring your progress. However, they may not match the score used by your lender.
Some banks and credit cards offer FICO scores for free, while others may show a VantageScore or another type. Either way, these tools are helpful for keeping an eye on your credit health.
Credit utilization refers to the percentage of your available credit that you’re using. It’s part of the “Amounts Owed” category in the FICO model. For example, if your total credit limit is $10,000 and your balances owed are $2,000, your utilization is 20%.
Most experts recommend keeping this ratio under 30%, but aiming for 10% or lower can improve your score even faster.
Learn more about Credit Utilization here.
Your payment history is the biggest factor in your FICO score. Even one late payment can lower your score significantly, especially if it’s recent. A missed payment can remain on your credit report for up to seven years.
Payment history includes credit cards, auto loans, mortgages, student loans, and even retail store accounts. Making consistent, on-time payments is the best way to maintain a strong credit score over time.
A good credit mix shows that you can manage multiple types of accounts. This might include credit cards, personal loans, auto loans, and a mortgage. If you only use one type of credit, your score may not benefit from the diversity lenders like to see.
Opening too many new accounts in a short period can hurt your score. Each new application triggers a hard inquiry, which can temporarily lower your score. Applying for multiple cards or loans at once makes it appear that you’re in financial trouble; even if you’re not.
Lenders use your credit score to determine your credit risk; that is, how likely you are to repay borrowed money. A low score means higher credit risk and may lead to higher interest rates, extra fees, or a denial of credit. A high score signals lower risk and makes you a more appealing borrower.
Even insurance companies sometimes use your score to determine risk when setting rates. A strong score may help you qualify for lower premiums.
Not all credit checks are the same. There are two types of inquiries:
When it comes to shopping for a mortgage or car loan, multiple inquiries within a 14–45 day window are typically treated as one inquiry by most credit scoring models.
You don’t just have one score. In fact, you may have dozens. That’s because:
These variations explain why you might see different numbers depending on where you check. The key is to know whether your score falls in a healthy range, not to obsess over one exact number.
Score checking on a regular basis helps you understand how your actions affect your credit over time. Many financial institutions and websites provide this service for free. Some offer alerts if your score drops or if new activity appears on your report.
Signing up for credit monitoring may help you detect identity theft early and stay on top of your credit behavior. Some services are free, while others offer premium features for a fee. Learn more from Credit.org's guide to credit monitoring.
Thanks to federal law, you have important rights when it comes to your credit:
The Consumer Financial Protection Bureau (CFPB) offers more details about these protections and how to exercise them.
There are several myths about what influences your credit score. The following do not impact your score:
While these factors may be considered in a loan application, they are not used in any credit scoring models.
If you’re just starting out or haven’t used credit in a while, you might be considered “credit invisible.” This means there isn’t enough information in your credit report to generate a score. In this case, you’ll need to begin building credit by opening a secured credit card, becoming an authorized user, or taking out a small credit-builder loan.
Once you’ve had an account open for six months and reported to the bureaus, you’ll receive a FICO score.
Mistakes happen. And when they do, they can hurt your credit. If you find an error—like an account you didn’t open, a payment marked late when it wasn’t, or outdated information—you have the right to challenge it.
You can file a dispute online or by mail with the credit bureau reporting the error. They must investigate and resolve the issue, usually within 30 days. Credit.org offers a step-by-step guide on how to dispute credit report errors effectively.
Here are some practical strategies to improve and protect your score:
Following these habits consistently can help you achieve a good credit score and maintain it over the long term.
Your credit score is more than a number; it’s a reflection of your financial behavior. Understanding how it’s calculated, how to manage it, and how to protect it gives you more control over your financial future. Take advantage of your rights under federal law, monitor your credit actively, and reach out for help when needed.
A strong credit score can open doors. And with the right tools and knowledge, you can start building that strength today.
If you’re overwhelmed with debt, behind on payments, or unsure where to begin, don’t wait. Speak with a certified credit counselor. Credit.org offers free, confidential help to guide you through budgeting, debt management, and credit behavior improvement.
A counselor can also explain how your actions today affect your most credit scores and help you build a realistic plan for reaching your financial goals.
