Credit Score Basics: How to Build and Improve Yours

What Is a Credit Score?

Your credit score is a three-digit number, typically ranging from 300 to 850, that reflects your creditworthiness—or how likely you are to repay borrowed money. Think of it as a financial report card that lenders, landlords, and sometimes even employers use to gauge your reliability when it comes to managing debt and making payments on time[1][5].

Major credit bureaus such as Equifax, Experian, and TransUnion collect data on your borrowing and repayment habits, which they use to calculate your score. The higher your score, the more favorably you’re viewed by lenders and the better terms you’re likely to receive on loans and credit cards[1].

Why Does Your Credit Score Matter?

Having a good credit score opens doors to financial opportunities. It can help you get approved for credit cards, car loans, mortgages, and even rental housing. Additionally, a higher score can secure you lower interest rates, saving you money over time. In some cases, employers may review your credit as part of their hiring process[2][5].

How Are Credit Scores Calculated?

Credit scores are calculated using several key factors, each contributing a certain percentage to your overall score. The most widely used scoring model is FICO, which breaks down as follows[2][3]:

• Payment History (35%): Have you paid your bills on time? Late or missed payments, bankruptcies, and collection accounts can hurt your score the most.
• Amounts Owed (30%): How much of your available credit are you using? High balances relative to your credit limits can negatively impact your score.
• Length of Credit History (15%): How long have your credit accounts been open? A longer history can help improve your score.
• New Credit (10%): Have you recently opened several new credit accounts? Each application can result in a hard inquiry, which may lower your score slightly.
• Credit Mix (10%): Do you have a variety of credit types (credit cards, loans, etc.)? A diverse mix can be beneficial.

Each of these factors is assessed using the information found in your credit report, which updates as your financial habits change[3].

How to Build Your Credit Score

If you’re just starting out or looking to rebuild, here are some proven ways to build your credit score from the ground up:

• Pay Bills on Time: Your payment history carries the most weight. Even one missed payment can have a significant impact, so set reminders or automate payments whenever possible[2][3].
• Keep Balances Low: Aim to use less than 30% of your available credit on any card. For example, if your limit is $1,000, try not to carry a balance higher than $300[2].
• Open Accounts Responsibly: Only apply for credit when necessary. Too many applications in a short time can lower your score due to multiple hard inquiries[1][3].
• Consider a Secured Credit Card: If you have little or no credit history, a secured card (which requires a deposit) can be a good starting point[1].
• Become an Authorized User: If someone with good credit adds you as an authorized user on their card, their positive payment history can help boost your score[1].
• Check Your Credit Report: Review your credit reports regularly for errors or fraudulent activity. If you spot any mistakes, dispute them with the credit bureau to have them corrected[1].

How to Improve a Low Credit Score

Improving your credit score takes time, but these strategies can help you make progress:

• Catch Up on Past-Due Accounts: If you’ve missed payments, bring those accounts current as soon as possible[2].
• Reduce Credit Card Debt: Focus on paying down high-interest balances first, but aim to lower all your revolving debt[2][3].
• Limit New Credit Applications: Each hard inquiry can impact your score, so only apply for new credit when truly needed[3].
• Maintain Old Accounts: Keeping older accounts open (even if you use them rarely) can help your score by improving your average account age[1].
• Mix Up Your Credit: If you only have one type of credit (like a credit card), consider adding a different type, such as a personal loan, to diversify your credit mix[3].

Common Credit Score Myths Debunked

• Checking your own credit hurts your score: Not true! Checking your own credit report is considered a "soft inquiry" and has no impact on your score[2].
• You need to carry a balance to build credit: False. Paying your balances in full each month is best for your score and your wallet[1].
• Closing old accounts boosts your score: In reality, this can sometimes lower your score by reducing your available credit and shortening your credit history[1][3].

Final Thoughts

Understanding your credit score and how it works is the first step toward better financial health. Building and improving your score is all about consistent, responsible financial habits—paying bills on time, keeping balances low, and monitoring your credit report. Over time, these efforts can help you unlock better rates, more financial opportunities, and greater peace of mind.

Sources

• The Beginner's Guide to a Good Credit Score (& How to Get One) - SCCU
• Credit Score Basics: Everything You Need to Know - Experian
• How are FICO Scores Calculated? - myFICO
• What is Credit Score? Beginner's Guide | Money Instructor (YouTube)
• Credit Scores 101: A Beginner's Guide For Teens and Young Adults - Piscataqua Savings Bank