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Credit Scores: What You Need to Know

Posted on Monday, January 27, 2020 in Financial Education

When it comes to personal finances, your credit score is the single most important number you should know. It’s also important to know how to build and continually improve your credit score throughout your life.

A high credit score reflects your ability and willingness to pay your bills on time. When you have a high credit score, lenders will view you as a lower-risk borrower. This can result in lower interest rates on loans or being approved for credit cards that offer a higher level of rewards. A credit score can even impact the cost of insurance premiums. Ultimately, having a high credit score will save you money in the long-term.

FICO uses five main factors to determine a credit score. Some have a larger impact than others, but each area is examined to determine a person’s ability to repay loan.

  • Payment history — Consistency in paying your bills on time is the most important factor in your credit score. Paying bills on time is the quickest way to increase your credit score.
  • How you use credit — Maxing out your credit cards or consistently carrying large balances will negatively impact your credit score.
  • Length of credit history — The more experience you have using credit responsibly will also positively impact your credit score.
  • Number of accounts or inquiries — Having more credit accounts in your history than your income may lower your credit score.
  • Credit mix — Credit cards can be valuable tools in building a credit score. If your entire credit history is made up of credit cards, however, your score won’t be as high as someone who has a mortgage loan, car loan and student loan in addition to credit cards.

Credit Ranges

Credit scores vary depending on the credit model used to measure your credit. Typically the ranges fall in the following categories:

  • Excellent credit: 750 or higher
  • Good credit: 700 to 749
  • Fair credit: 650 to 699
  • Poor credit: 600 to 649
  • Bad credit: Lower than 600

Tips for Improving Your Credit Score

Building and maintaining a high credit score requires organization and willpower to live within your means. Following are steps you can add to your daily routine that will help you improve your credit score.

  • Create a budget and stick to it.
  • Pay bills on time.
  • Maintain low credit card balances.
  • Check your credit report each year at
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