Credit Resources
Understanding your credit is essential to your financial health. These resources will help you monitor, interpret, and improve your credit score over time.
Your Credit Score Matters
A good credit score can save you thousands of dollars through lower interest rates on loans and credit cards. It can also affect your ability to rent housing, the rates you pay for insurance, and even job opportunities.
Understanding Credit Score Ranges
Credit scores typically range from 300 to 850. The higher your score, the better terms you'll be offered by lenders. Here's a breakdown of what different score ranges mean:
Excellent (750-850)
Top-tier approval odds, best interest rates, highest credit limits, premium credit card offers, and most favorable loan terms.
Good (700-749)
Strong approval odds, competitive interest rates, good credit limits, quality credit card offers, and favorable loan terms.
Fair (650-699)
Moderate approval odds, average interest rates, modest credit limits, standard credit card options, and acceptable loan terms.
Poor (600-649)
Limited approval odds, higher interest rates, lower credit limits, restricted credit card options, and less favorable loan terms.
Bad (300-599)
Difficult approval odds, highest interest rates, minimal credit limits, limited secured credit card options, and challenging loan terms.
How to Access Your Credit Reports
Federal law entitles you to one free copy of your credit report every 12 months from each of the three major credit bureaus. Due to the COVID-19 pandemic, free weekly online reports are currently available through AnnualCreditReport.com.
Major Credit Reporting Agencies
Equifax
One of the three major credit bureaus that collects and maintains consumer credit information.
Experian
A major credit bureau that provides credit reports, monitoring services, and scores.
TransUnion
A major consumer credit reporting agency that provides credit reports and scores.
What Affects Your Credit Score?
Understanding the factors that influence your credit score is the first step to improving it. While the exact formula is proprietary, FICO has disclosed the general factors and their relative importance:
Payment History (35%)
Make all payments on time. Set up automatic payments to avoid missed due dates. If you've missed payments, get current and stay current.
Improvement Tips:
- •Set up payment reminders or automatic payments
- •Bring any past-due accounts current as quickly as possible
- •If you've missed a payment, contact the creditor immediately
- •Consider tools like Experian Boost to get credit for utility payments
Credit Utilization (30%)
Keep your credit card balances low relative to your credit limits. Aim to use less than 30% of your available credit, with under 10% being ideal.
Improvement Tips:
- •Pay down existing debt strategically
- •Make multiple payments throughout the month
- •Ask for credit limit increases (without hard inquiries)
- •Keep old accounts open even if unused to maintain available credit
Length of Credit History (15%)
Maintain long-standing accounts. The age of your oldest account, newest account, and average age of all accounts impacts this factor.
Improvement Tips:
- •Keep your oldest accounts open and active
- •Avoid closing old credit cards, even if unused
- •Use older cards occasionally to prevent issuer from closing them
- •If you're new to credit, consider becoming an authorized user
Credit Mix (10%)
Maintain a diverse mix of credit types, such as credit cards, retail accounts, installment loans, and mortgage loans.
Improvement Tips:
- •Maintain a mix of revolving credit (like credit cards) and installment loans
- •Consider a credit-builder loan if you have limited credit history
- •Don't open new accounts just for the sake of mix—only when needed
- •Demonstrate responsible management of different credit types
New Credit (10%)
Minimize the number of hard inquiries and new accounts. Multiple applications for credit indicate higher risk.
Improvement Tips:
- •Space out new credit applications by at least 3-6 months
- •Research and only apply for cards you're likely to qualify for
- •Shop for specific loans (like auto or mortgage) within a 14-45 day window
- •Request pre-qualifications (soft inquiries) before applying
Common Credit Myths Debunked
Myth: Checking your own credit hurts your score
Truth: Checking your own credit is considered a "soft inquiry" and doesn't affect your credit score. You can check your own credit as often as you like without any negative impact.
Myth: Closing old credit cards will improve your score
Truth: Closing old accounts can actually hurt your score by reducing your overall available credit (which increases utilization) and potentially shortening your credit history.
Myth: You need to carry a balance on credit cards to build credit
Truth: You don't need to carry a balance or pay interest to build credit. Using your card and paying the full balance by the due date is the most effective and least expensive way to build credit.
Myth: Married couples have joint credit reports
Truth: Credit reports are individual, not joint. While you may have joint accounts that appear on both reports, each person maintains their own credit history and score.
Myth: Paying off a negative item removes it from your credit report
Truth: Paying off a collection account or other negative item doesn't remove it from your credit report, though it updates the status to "paid." Most negative items remain on your report for seven years.
Credit Repair vs. Credit Building
Credit repair focuses on addressing negative items on your credit report, such as disputing errors or negotiating with creditors to remove negative entries. While legitimate credit repair can be helpful, be wary of companies promising to "erase bad credit" or create a new credit identity.
Credit building is the process of establishing positive credit history through responsible use of credit products over time. This might include secured credit cards, credit-builder loans, becoming an authorized user, or responsible use of existing credit.
For most people, a combination of addressing errors and building positive history is the most effective approach.
How Loan Eligibility Is Affected By Your Credit
While credit scores are important, lenders consider multiple factors when evaluating loan applications:
- Credit score and history: Your track record of managing debt
- Income and employment: Your ability to repay based on earnings
- Debt-to-income ratio: The percentage of your income that goes to debt payments
- Loan amount and purpose: What you're borrowing and why
- Down payment/collateral: Assets securing the loan (for certain loan types)
Even with less-than-perfect credit, demonstrating strong income, stable employment, and manageable existing debt can improve your chances of loan approval.
Free Credit Resources
- •AnnualCreditReport.com: The only federally authorized source for free credit reports from all three bureaus
- •Consumer Financial Protection Bureau (CFPB): Government resources on credit, debt, and financial education
- •Federal Trade Commission (FTC): Information about credit repair scams and legitimate credit repair options
- •Credit Karma, Credit Sesame: Free credit score monitoring services (note these provide VantageScore, not FICO scores)
- •Nonprofit Credit Counseling: Organizations like the National Foundation for Credit Counseling offer free or low-cost guidance
Start Building Better Credit Today
Work with lenders who understand your unique financial situation and can help you find solutions that match your needs.