What Is a Credit Score?

Your credit score is a number that provides an overall view of how reliable you are when it comes to borrowing money. It helps lenders determine whether to lend you money or give you a credit card or mortgage. A high score makes it easier to qualify for loans and better interest rates, but a low score can make borrowing more costly or difficult to obtain.

Payment History

Your payment history has the largest impact on your credit score. Lenders take well to responsible bill and loan payers. Missing payments, making late payments, or defaulting on loans can lower your score quickly. Maintaining a good credit profile depends on your ability to pay on time.

Credit Utilization

Credit utilization is how much of your available credit you are using. For instance, if you have a credit card with a $1,000 limit and you owe $500 on it, your utilization would be 50%. You want to try and maintain this ratio below 30%. Lenders might see high balances as a risk and lower your score.

Length of Credit History

The longer you’ve had accounts in your name, the better it is for your score. Old accounts also demonstrate a long history of using credit responsibly. Having too many new accounts open in a short period can shorten your average account age and hurt your score.

Types of Credit

A good mix of credit types (credit cards, loans and mortgages) can help your score. It demonstrates that you are able to manage different types of credit sensibly. But you don’t need to have all types — managing one type competently is much better than having multiple types you wouldn’t know what to do with.

New Credit Inquiries

Each time you request new credit, a hard inquiry appears on your report. And you could damage your score if you have too many inquiries in a short period. Lenders regard so many submissions as a red flag for financial distress. Be careful about new credit applications.

Recent Changes in Credit Scoring

Some newer credit scoring models also factor in information on rent payments, utility bills and subscription payments. A positive history in these areas can lift scores for a person who has little credit history. Keeping up with these changes may enable you to better manage your credit.

How to Maintain a Healthy Credit Score

• Always pay bills on time.
• Keep credit card balances low.
• Avoid opening too many accounts at once.
• Monitor your credit report regularly for errors.
• Continuing to demonstrate good credit habits over time keep your score strong and makes you eligible for better opportunities.