Your credit score is a three-digit number that provides lenders with a snapshot of your creditworthiness for a given moment in time. It’s a key piece of information that can determine whether you qualify for a loan or credit card, what interest rate you pay and even how much you can spend. While there are many factors that influence your credit scores, two of them carry the most weight: payment history and amount owed.
Your payment history accounts for 35 percent of your credit reach us now scores and includes how consistently you’ve paid bills over the course of your credit history, as well as how recently you’ve missed a bill payment or had an account sent to collections. Your credit utilization, or how much of your available credit you’re using, also plays a role. Keeping balances low and not maxing out your credit cards is a good way to improve this aspect of your credit score.
The length of your credit history, the average age of your oldest and newest accounts, and the type of credit you have (installment loans versus revolving lines of credit) each make up 15 percent of your score. Lenders like to see a long, established credit history, and they’re interested in knowing that you can manage both installment accounts (like car loans or mortgages) and revolving accounts, like credit cards.
New credit makes up about 10 percent of your score, and it’s based on how recently you’ve applied for credit, whether you’ve opened new accounts, and how many inquiries you’ve had. New credit can lower your credit score temporarily because lenders may view you as a riskier borrower. But applying for new credit infrequently and only when necessary to meet a specific need can help you build your score over time.
Generally speaking, credit scores in the range of 300 to 850 are considered good. A score in this range is above the national average, which means you’re less of a credit risk to lenders and are more likely to qualify for loans with favorable terms.
A bad credit score indicates that you’re more of a lending risk and may not qualify for loans with favorable terms, or at all. A score in the 500s and below is typically considered to be in poor standing.
Aside from addressing any current outstanding debt, there are a few other ways to improve your credit scores over time: