How credit scores work in the US, and how to improve yours
Your credit score affects the rate you pay on a mortgage, a car loan or a credit card. What goes into it, how to check it free and how to raise it.
A credit score is a three-digit number that tells lenders how likely you are to repay what you borrow. In the US, the most widely used model is the FICO score, which runs from 300 to 850. A higher score can mean lower interest rates on a mortgage, car loan or credit card, and it can affect apartment applications and insurance prices too. Over a lifetime, the difference between a good and a poor score can be worth tens of thousands of dollars. This guide explains how credit scores work in the US and how to improve yours.
What goes into a FICO score
FICO weighs five broad factors. Payment history counts most, about 35%: whether you pay on time. Amounts owed, about 30%, looks largely at credit utilization, the share of your available credit you are using. Length of credit history accounts for about 15%, new credit, meaning recent applications and accounts, about 10%, and your credit mix, such as cards plus an installment loan, about 10%.
Another common model, VantageScore, uses similar ingredients with different weights, so your scores can differ slightly depending on which one a lender uses. Lenders may also use industry-specific versions, such as scores tailored for auto loans.
What a good credit score is
Scores in the upper 600s are often considered fair to good, scores in the mid-700s and above are generally considered very good, and scores above 800 are excellent. Each lender sets its own cut-offs, but crossing these broad thresholds can open the door to better rates. On a 30-year mortgage, even a small rate difference changes your monthly payment noticeably, as our loan calculator shows.
Checking your credit reports
Your score is calculated from your credit reports, held by the three nationwide bureaus: Equifax, Experian and TransUnion. You can get free copies of your reports from each through AnnualCreditReport.com, the official site. Check them for accounts you do not recognise, late payments that are wrong, or balances you have paid. You have the right to dispute errors, and the bureau must investigate.
How to raise your credit score
Pay every bill on time; setting up automatic payments for at least the minimum is the simplest protection. Keep your credit card balances low relative to your limits, ideally well under a third, and pay cards in full each month if you can. Keep older accounts open, since they lengthen your history, and apply for new credit only when you need it.
If you are starting from scratch, a secured credit card, a credit-builder loan or becoming an authorized user on a family member's well-managed card can help you build a record. Improvement takes months rather than days, but steady habits work.
Paying down debt to help your score
Because credit utilization carries so much weight, paying down credit card balances is one of the fastest ways to lift a score. Choosing a repayment strategy helps you stay motivated; see our guide to the debt avalanche versus snowball methods. Having an emergency fund in a high-yield savings account also reduces the need to put surprise expenses on a card.
Watch out for credit repair scams
Be wary of companies promising to "fix" your credit quickly for a fee. Accurate negative information cannot legally be removed early; you can dispute errors yourself for free. Freezing your credit with each bureau, also free, is a powerful protection against identity theft, and you can lift the freeze temporarily when you apply for credit.
Frequently asked questions
What is the FICO score range?
From 300 to 850; higher is better.
What affects a credit score the most?
Payment history, at about 35% of a FICO score, followed by amounts owed at about 30%.
Where can I get my credit reports for free?
From AnnualCreditReport.com, the official site for reports from Equifax, Experian and TransUnion.
Sources
This article is general information, not financial advice.