A credit score is a three-digit number between 300 and 850 that summarizes how reliably you repay debt. Lenders use it to decide whether to approve you and at what interest rate. The difference between a 620 and a 760 score on a 30-year mortgage can easily cost or save you $100,000 in total interest. It matters.
What Makes Up Your Score
FICO scores, the most widely used model, are calculated from five factors. Payment history accounts for 35% and is the single most important element. Credit utilization makes up 30% and measures how much of your available credit you're using. Length of credit history is 15%, new credit inquiries are 10%, and the mix of credit types is the remaining 10%. Most people can meaningfully improve their score by focusing on just the first two.
Payment History is Non-Negotiable
A single missed payment can drop your score by 50 to 100 points and stays on your report for seven years. Set up autopay for at least the minimum on every account. You don't have to pay in full every month to avoid the penalty, but you must pay on time, every time. If you've already missed payments, the damage fades over time as long as your recent history is clean.
Manage Your Utilization Ratio
Utilization is your credit card balance divided by your credit limit. If you have a $10,000 limit and carry a $4,000 balance, your utilization is 40%. Scores above 750 typically show utilization below 10%. Pay down balances aggressively, or ask for a credit limit increase without increasing your spending, and your score will respond quickly.
Checking your own credit report does not hurt your score. Get your free report at AnnualCreditReport.com and review it for errors. Disputing inaccurate negative items is one of the fastest ways to see a meaningful score improvement.
