Understand the factors that make up a credit score and know how to check your credit score to help build your financial foundation.
Think of a credit score as a report card for your finances. Like grades, some factors influence your score more than others. But understanding and knowing how to check your credit score can help you learn how to protect and improve it.
What is a credit score?
A credit score is a number that measures how well you’ve been able to borrow and repay money—in other words, whether you pose a risk to lenders, are reliable to pay bills, or can pay back money you borrow. The higher the credit score, the lower the perceived risk.
Credit scores are made up of a variety of finance-related factors. Those include whether you’ve paid your bills—everything from utilities to car payments—on time, and how much you owe, too.
5 factors that make up a credit score
- Bill paying habits: Do you pay your bills on time?
- Credit utilization: How much of your credit do you use?
- Credit age: How long have you had credit, and how old are the debts you have?
- Credit mix: What types of credit—a loan, a credit card, for example—do you have?
- Credit requests: How often and when have you applied for new credit?
What are credit score ranges?
Credit scores can range from a low of 300 to a high of 850. Two companies—FICO and VantageScore—calculate credit scores and weigh credit score factors slightly differently. (That’s why you might see variation if you pull a credit report from different sources or at different times.) Scores also change frequently. In general:
- 300–629: Bad
- 630–689: Fair
- 690–719: Good
- 720+: Excellent
Tip: If you have an old card with no balance, there’s generally no harm to your credit score in keeping it.
How can you check your credit score?
If you have a credit card, you may have access to a free credit score at any time; check your statement. You can also request a credit report each year from Equifax, TransUnion, and Experian; each of those companies are required to provide you with an annual copy at no charge.
How do credit scores affect you and how can you improve your credit score?
Credit scores don’t just impact whether you’re able to get a loan for the big stuff such as mortgages and car loans. The lower your credit score, the more you’ll pay for those loans: Your credit score directly impacts the interest rate a lending institution offers. Potential landlords may pull a credit report before deciding to rent to you, too.
But a credit score isn’t a fixed number: Although it takes time, you can improve your credit score by focusing on the factors that affect it.
5 ways you can improve your credit score
- Pay your bills on time: Set up automatic payments and pay everything within 30 days.
- Lower your credit utilization: Aim to use less than 30% of your available revolving credit (credit cards, for example).
- Increase the age of credit but decrease lingering balances: While paying off debt as soon as you’re able is key, it’s OK to have a credit card (with a zero or always-paid-off balance) longer.
- Build a credit mix: Consider a mix of revolving debt (debt you pay off as you accumulate it—a credit card) and installment debt (debt that’s paid in the same amount, on the same date, until the loan is paid off—a car loan, for example).
- Limit credit requests: Avoid lots of new applications, particularly if you’re close to applying for a big loan.
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