Credit Score 101: Understanding Your Credit Score

Do you know what your credit rating means? Or are you familiar with how your credit score is used? Credit scores are an increasingly important three-digit number; you might not realize how big a part they can play in your finances and even some lesser-known areas.

Scores will fluctuate, but good financial habits can take you far. With planning and a little bit of research, it’s possible to improve your credit scores. Here’s what you need to know about your credit reports and how to raise your score.


You Aren’t Born With Credit

Not everyone uses credit, like a credit card or personal loan. It’s something you’ll need to establish and build on your own. Those who are very new to credit may not have sufficient financial records to calculate a score, like young adults 18 years of age or older.


Certain Financial Information Is Used to Calculate Your Score

The three major credit reporting bureaus use five factors to determine your credit score. In order of the largest to smallest impact on your credit, these include: payment history, amount owed, length of credit history, new credit and type of credit. Making on-time payments and maintaining a responsible credit utilization rate make up over 60 percent of your score. Length of credit, or the age of your oldest account, makes up 15 percent of your score, while new credit and type of credit (credit mix) both make up 10 percent of your score.


What Information Is Not Considered On Your Credit Score?

Your annual salary or other income information does not affect your credit score. Similarly, protected demographic information such as race, political affiliation or religion, are also are not used to calculate a score.


Credit Score Ranges Explained

The most common personal credit scoring models range from 300 to 850 points; the higher your score, the less interest you’ll typically pay for things like home or personal loans and credit cards.

Lenders use score ratings like “fair,” “good” or “poor” to determine your creditworthiness or your financial risk. Based on your rating, the interest you’ll pay will fall into the sub-prime, near-prime, prime or super-prime group.

Credit score ranges


How Do I Raise My Score?

A poor or bad credit score can cost you more than money; sometimes, credit checks are run for rental agreements and job applications! But there are a few easy ways to raise your score even if you’re in debt. Since everyone’s financial situation is unique, we’ll show you two different ways to raise your credit score. As you read through these examples, keep in mind that all credit journeys are unique. These stories are intended to demonstrate possible, not absolute outcomes.


Sharon is an exceptional mother and teacher. She works hard for everyone in her extended family, but a few late payments and a maxed-out credit card has put a damper on her credit score.

Credit score: 589

However, she has a plan:

  • Sharon consolidates her debt with a personal loan.
  • Sharon pays off all her credit card debt using the loan.
  • Sharon makes on-time payments for two years.
  • Sharon’s credit score jumps 16 points to 605, a near-prime score!1

Sharon’s score increased mainly because of her commitment to on-time payments and a lowered credit utilization rate. Since those are two of the higher-impact areas, she was able to raise her score by several points.


Carlos is responsible with money, but he hasn’t always been as vigilant about his credit score. When he checked his report for the first time last month, he noticed a recent credit inquiry from a company he’s never heard of.

Credit score: 611

He was able to correct the error (and raise his score) with these steps:

  • Carlos checked all three credit reports to make sure nothing else was in error.
  • Once he made sure nothing else was incorrect, he contacted the credit agency and company that reported the inquiry to notify them of the error.
  • The company notified the bureau of the mistake and removed the incorrect information from his credit report.
  • Carlos’s credit score increased by 4 points to 615!2

Recent credit inquiries have less of an impact on your score, so Carlos’s score raised by just a few points. Now that Carlos knows where and how to check his reports, he’s more in charge of his financial situation.




1TransUnion. (2019). Debt Consolidation Often Results in Higher Credit Scores and Better Credit Performance.

2myFICO. (n.d.). Credit Checks: What are credit inquiries and how do they affect your FICO® Score?



Bonnie is a Chicago transplant who's committed to seeing the world on a dime. As an avid news junkie with an affinity for finance, she loves to help others do more with less.

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