Your credit score represents your entire financial reputation in three simple digits.
No pressure, of course! It’s easy to see why building credit can be considered stressful, but it doesn’t have to be. A high credit score can net you lower interest rates and help you work toward financial goals. If your score is lower than you would like, you can take steps to raise it, but first, you’ve got to know how.
We can help. Let’s demystify credit scores together and help you figure out the best way to build credit!
What does your credit score really mean?
Your credit score is like an at-a-glance financial report card. It’s one number that showcases your financial history, the way you handle loans, how you typically handle your payments, and more.
Generally, the higher your credit score is, the better, but here’s a more nuanced breakdown:
- 300-579 is considered poor. (If you’re here, don’t worry. Everyone starts somewhere.)
- 580-669 is considered fair.
- 670-730 is considered good.
- 740-799 is considered very good.
- 800-850 is exceptional.
Why does all of this matter? Why would you rather your score be good instead of fair?
It depends on what you’re hoping to achieve. First-time homebuyers can unlock loans and mortgages with good credit scores. Later in life, your score can get you better interest rates or help you save money in other ways—more on that in a bit.
For now, what determines your own magic number?
What influences your credit score?
Several factors go into your specific number. These include:
- Your debt-to-available-credit ratio: How high is your credit limit across all your cards (or the amount you could spend if you needed to)? Secondly, how much debt do you owe? If you have a low debt-to-available-credit ratio, that signals responsible borrowing and can contribute to a higher score.
- The age of your credit lines: The longer you’ve held credit lines, the better they are for your score. It shows that you have a history of managing your credit responsibly.
- The number of credit report inquiries you have: This might seem counterintuitive, but the more often people request formal report inquiries about your credit, the more likely it is that you’ll see points shaved off your score. (When you check your own score, that shouldn’t count as a formal inquiry.)
- Your credit mix: If you can, having a variety of credit types (e.g., credit cards, mortgages, or installment loans) can have a positive impact on your score. Lenders like to see that you can handle different types of credit responsibly.
Whether you’ve missed any payments: This one’s simple: If you miss a payment, that can negatively impact your score.
How do these factors affect the best way to build credit?
That can seem like a wild list of disconnected factors, but it’s not! Let’s connect the dots. If you’re interested in adopting habits that build your credit score, consider the following:
Maintain low credit utilization.
Try to keep your balance on your card low compared to your overall credit limit—under 30% is a great goal. For example, if your credit limit across all your cards is $10,000, that would involve carrying a balance of less than $3,000.
Cherish your older credit lines.
If you have an older credit card that you’re not using regularly, resist the temptation to clean house and close that account. It may not seem like it’s doing much, but that old card is helping boost your credit score.
Be mindful about credit inquiries.
Credit inquiries happen when you apply for new credit. Try to keep these inquiries limited to thoughtful occasions only, such as when you’re applying for a mortgage or getting a new credit card that works for you.
Make your payments on time!
A history of punctual payments shows that you’re a trustworthy borrower. If possible, set up automatic payments to help ensure you never miss a deadline.
Check your credit score regularly.
In addition to these credit-boosting habits, it’s a good idea to schedule one more recurring reminder into your calendar: Check your credit score on a regular basis. (You can check your scores for free and without worry of impacting your credit once per year.) If it’s trending in the right direction, no worries. On the other hand, a suddenly dropping score can be a clue that you need to examine your credit transactions or plan a few strategic steps back toward optimal financial health.
We’re here to help you find your best way to build credit.
In the often-confusing world of credit scores, knowledge is power—including, of course, the knowledge that you don’t have to navigate credit-building strategies on your own.
As a community-driven credit union, iQ is both your guide and your ally. We're here to make your credit journey less about confusion and more about clarity.
Interested in learning more? Reach out to our friendly team, and we’ll be more than happy to answer any questions you may have.