Understanding Credit Scores
The foundation of your financial health
Credit Score Ranges
What Makes Up Your FICO Score
Most important factor. Pay all bills on time, every time.
Keep balances low. Aim for under 30%, ideally under 10%.
Keep old accounts open. Average account age matters.
Different types: cards, auto loans, mortgages.
Limit hard inquiries and new account openings.
Free Credit Reports
You're entitled to one free credit report annually from each bureau:
- Experian
- Equifax
- TransUnion
Check Your Score For Free
- Credit Karma
- Credit Sesame
- Your bank or credit card
- Experian.com
Quick Credit Score Wins (30-90 days)
Pay Down Balances
Reduce credit card balances below 30% of limits. Even better: below 10%.
Set Up Autopay
Never miss a payment again. Set up automatic payments for at least the minimum.
Dispute Errors
Review credit reports and dispute any inaccuracies with the credit bureaus.
Request Credit Limit Increases
Ask for higher limits on existing cards to lower utilization ratios.
Become an Authorized User
Ask family members to add you to their well-managed credit cards.
Try Experian Boost
Add utility, phone, and streaming payments to your credit file for free.
Long-term Credit Building Strategies
1. Maintain Perfect Payment History
- Never miss payments: Even one 30-day late payment can drop your score 60-110 points
- Set up multiple reminders: Calendar alerts, email notifications, text messages
- Pay early: Many issuers report balances on statement closing date
- If you're late: Call immediately to request goodwill removal
2. Optimize Credit Utilization
- Overall utilization: Keep total balances under 30% of total limits
- Per-card utilization: Keep each card under 30%, ideally under 10%
- Pay multiple times per month: Keep balances low throughout the month
- Request limit increases: Every 6-12 months on existing cards
3. Build Credit History Length
- Keep old accounts open: Even if you don't use them regularly
- Use old cards occasionally: Small purchases to keep them active
- Avoid closing your oldest card: It anchors your credit history
- Be patient: Credit age improves naturally over time
4. Diversify Your Credit Mix
- Revolving credit: Credit cards, lines of credit
- Installment loans: Auto loans, mortgages, personal loans
- Don't force it: Only take credit you actually need
- Manage everything well: Payment history matters most
Credit Score Myths
Checking your credit score hurts it
Checking your own score is a "soft inquiry" and doesn't affect your score.
You only have one credit score
You have multiple scores from different models and bureaus.
Closing cards improves your score
Closing cards can hurt by reducing available credit and average account age.
Income affects your credit score
Income is not a factor in credit scoring models.
Credit Monitoring Apps
What Hurts Your Credit Score
Major Negatives (Can Drop Score 60-200+ Points)
- Bankruptcy: 7-10 years on report
- Foreclosure: 7 years on report
- Tax liens: Can remain indefinitely
- Collections: 7 years on report
- Charge-offs: 7 years on report
Moderate Negatives (Can Drop Score 10-80 Points)
- Late payments: 30, 60, 90+ days late
- High credit utilization: Above 30%
- Hard inquiries: Too many in short period
- Closing old accounts: Reduces credit history
- Maxing out cards: Even if paid on time
Recovery Timeline
- Hard inquiry: 2 years to fall off, minimal impact after 1 year
- Late payment: 7 years to fall off, impact decreases over time
- Collection/charge-off: 7 years to fall off
- Bankruptcy: Chapter 7: 10 years, Chapter 13: 7 years
Building Credit from Scratch
- Secured credit card: Requires deposit, acts like regular card
- Credit builder loan: Small loan held in savings account
- Authorized user: Piggyback on family member's good credit
- Student credit card: Easier approval for students
- Alternative data: Rent, utilities through services like Experian Boost
Rebuilding After Bad Credit
- Stop the bleeding: Bring all accounts current
- Negotiate with creditors: Payment plans, settlements
- Consider credit counseling: Non-profit credit counseling agencies
- Secured cards: Easier approval, build positive history
- Be patient: Rebuilding takes 12-24 months minimum
How Credit Scores Affect Loan Rates
| Credit Score Range | 30-Year Mortgage Rate* | Auto Loan Rate* | Personal Loan Rate* | Monthly Difference** |
|---|---|---|---|---|
| 760-850 (Excellent) | 6.8% | 5.5% | 6.5% | Baseline |
| 700-759 (Very Good) | 7.0% | 6.2% | 8.5% | +$40 |
| 660-699 (Good) | 7.2% | 8.5% | 13.5% | +$120 |
| 620-659 (Fair) | 7.7% | 12.5% | 18.5% | +$250 |
| 580-619 (Poor) | 8.3% | 16.5% | 24.5% | +$420 |
| 500-579 (Very Poor) | Difficult to qualify | 20%+ | 29%+ | +$650+ |
*Rates are examples and vary by lender, location, and other factors.
**Monthly difference based on $300K mortgage, $25K auto loan, and $15K personal
loan.