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Understand Credit Score

Updated on January 29, 2010

Credit Score

Most people are aware that we have credit, but not everyone fully understands where it comes from or how it works. Basically, your credit score is a number that changes as the elements of credit that you have change. That may sound complicated if you don't know what is in your credit report, or how to read it.

But, for all intensive purposes, a credit score is based on your credit history, which can include the basic types of credit- credit cards, loans, length of credit, etc.

You may not think missing a monthly payment or two is that big of a deal, but it does show on your credit report. You don't want to have tons of late bills and proof of irresponsible credit line because it'll build up negative credit history and will definitely impact your future purchases, such as cars and houses.

The main information that impacts your credit score will vary, but you'll find that elements such as the following will affect your credit report.

  • Number of late payments and the severity of the lateness
  • Type, number, and age of accounts
  • Total debt
  • Public records

Credit score do not take into account the following information:

  • Race, color, religion, national origin, sex marital status, or age.
  • Salary, occupation, title, employer, date employed or employment history.
  • Where you live.
  • Certain types of credit inquiries (requests for credit report). Your credit score will not count your personal credit inquiries, promotional inquiry requests by lendors, or account reveiew inquires for employment.

Evaluate Credit Score

Your credit score will vary per country, in the United States, you'll find that a credit score can fall between 330 850 even though it is measured from 0 to 999. Most people's credit score will fall between 650 and 750. Generally, if you have a credit score of 700 or more, you have a good credit management style.

  • 330-619: (Bad credit) You need to work on raising your score and getting any disputes taken care of, as otherwise you will have a hard time getting a loan or any banking assistance.
  • 620-659: (Fair credit) You will typically get a below prime financing and interest rates.
  • 660-720: (Good credit) You will generally get average/ prime financing and interest rates.
  • 721-750: (Good/Above average credit) You will typically get at least prime financing and lower interest rates.
  • 751+: (Excellent credit) You may be able to get even lower interest rates and financing, but it will depend on what types of credit you have

Raise Your Credit Score

There are many different things that can affect your credit score, and if you feel like you need to raise your score, it's good to know what factors that to consider altering. Just remember that in most cases, what can alter your credit score will be over a long-term basis.

  • Make sure that you have your bills paid on time, and that you don't have any overdue accounts.
  • Make sure that you don't have a collection, charge-off, bankruptcy, lien, lawsuit, or judgment file on your credit report. If you do, try to get them resolved as soon as possible.  In some of these cases, public record items may remain on your record for 7 to 15 years, but when trying to get a new line of credit, it's best that you have at least two years since the negative public record was filed on your credit report.
  • Make sure that you have a good cushion of available credit between your credit balance and credit limit, as this can have a positive affect on your credit score. Larger differences show other lenders that you aren't as likely to overextend yourself.
  • Make sure that you have at least two or more major credit cards on your credit report, to include Discover, American Express, VISA, or MasterCard. This will tell lenders that you are a responsible borrower and you're a better credit risk. making them more likely to lend you money.

If you need to raise your score on a short-term basis, there's not much you can do to potentially raise your credit score slightly.

  • Make your payments on time.
  • Don't carry a high balance on your credit cards; try to keep your balance below half of your available credit for an extended period of time.

Be Aware of What  Will Lower Your Credit Score

Typically, if the majority of your credit types have been opened for less than 3 years, this may potentially cause your credit to be lower. You want to have long-term credit accounts that you pay on time consistently.

What Affects Your Credit

In order to make sure that you keep good credit or before being able to raise yoru credit score, it's a good idea to understand what can potentially affect your credit.

A general idea as to what can affect your credit score, is as follows:

  • 35% is based on your consistent payment history and only payments that are later than 30 days past due.
  • 30% is based on the percent of your credit being used, meaning the lower your balance is on your credit cards, the higher your score will be in comparison to maxing out your credit.
  • 15% is based on the length of your credit history.
  • 10% is based on the types of credit you have to include installments (car payments, student loans, or mortgage), revolving (credit cards or lines of credit), and consumer finance (bank loans and the equivalent).
  • 10% is based on recent credit inquiries for credit you've recently obtained. There are some types of credit inquires that will affect your credit score negatively.

Types of Credit

Since 10% of your credit score is based on the different types of credits, it's a good idea to know what the different types are so that you can have a good mixture of credit types. 

  • Real Estate Loans: Loans for a home purchase or refinancing; this is the highest quality credit type you can have.
  • Installment Loans: Loans on major purchases that are to be paid off over time, such as cars, furniture, or major appliances.
  • Credit Cards: Basic credit cards that can be used anywhere (VISA, MasterCard, American Express cards); this is the most common type of credit.
  • Retail Cards: Credit that you have with a specific company, such as bank credit cards, store credit cards, and gas credit cards.

Credit Report

As for your credit report, it's basically a history of your credit-related accounts. It's a basic way to check out what's one your credit so that you can make sure that it's all yours and that someone else hasn't gotten a hold of your credit.

Evaluating your credit report will make it easy to check out what all is there. Plus you can go ahead and dispute anything that you don't feel is yours, so that it can potentially be wiped off your credit history.

A credit report will show the following information:

  • Public Records: Court related information, including bankruptcies, state and county court records, tax liens, monetary judgments and, in some states, overdue child support payments.
  • Credit Inquiries: Names of businesses or individuals that have obtained a copy of your Credit Report, including lenders, landlords, and employers.
  • Accounts: Payment history on all real estate, installment, and revolving credit accounts.

You can order a free credit report on websites like It's free for two weeks, and then make sure to the subscription if it's not something that you plan on checking on a regular basis.

I would recommend that if you have discrepancies on your credit report, that you keep the subscription, so that you can keep watch on your credit until the discrepancies have been removed. I would also recommend keeping the subscription if you're credit isn't as high as you'd like and you're trying to increase your score.

By keeping a watch on your credit, you can make sure that it doesn't fall below your ideal score.


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    • LauraGT profile image

      LauraGT 5 years ago from MA

      Great, very informative, easy-to-read (on a normally very dry) topic. Thanks!

    • Whitney05 profile image

      Whitney 7 years ago from Georgia

      Duchess, she's probably an authorized or just second name, which means she wouldn't get credit. She has to be a full joint user. I'm currently trying to get my boyfriend on one of my credit cards, but in order for him to see any credit benefits, he has to be joint not just an authorized user.

      hospitalera, in the U.S. you can have joint users on an account, and both parties reap the benefits. Many parents do it for teenagers so that when they're ready, they have credit to buy a car or house.

    • hospitalera profile image

      hospitalera 7 years ago

      @Duchess OBlunt

      Nops, in the European countries I lived so far, mainly UK and Germany, but short time also Spain and Czech Republic, things like "credit reputation" are personal and unique to each person, and when it comes to common accounts, both partners reap the benefits of responsible financial management, SY

    • profile image

      Duchess OBlunt 7 years ago

      An interesting note to add. I know someone personally who, together with her partner, have done everything. Mortgage, line of credit, car payments etc. Everything is jointly owned or owed by both, all legal with both named as joint partners. All payments made jointly, and yet only the husband receives the benefit of the credit score they have made. The wife has absolutely no credit rating. How sad is that? Is it the same in other countries?

    • Whitney05 profile image

      Whitney 7 years ago from Georgia

      In the U.S. they will not loan you money unless you have a history of credit and being responsible about it. The bank doesn't want to loan you money if you don't have proof that you can't keep up payments and be responsible.

      Here, it's good to have a checking account and savings account and to not go overdrawn in either, as that will also show, to some extent I believe, but it's not a big concern.

    • hospitalera profile image

      hospitalera 7 years ago


      That is really scary, and soo different how things work here in Europe. Here you can get a mortgage without ever having owned a credit card as long as your "bank and debt history" is ok and balanced. I am 40+ now and never have owned a credit card in my whole life and never had a problem because of that. Sheds a whole new light for me on the history of the current economical crisis imho, SY

      Oh, and "bank history" means only that you have a bank account in the plus and proof of income, not that you ever took out a credit and have paid it back...

    • Ben Zoltak profile image

      Ben Zoltak 7 years ago from Lake Mills, Jefferson County, Wisconsin USA

      Very well written Whitney, I've been studying credit reports here in the U.S. for awhile and you've helped demystify a few things for me, namely the percentage breakdown of how the powers-that-be derive that almighty number! I have successfully challenged a few blemishes on my report before and we are revving up to try and get a mortgage around here so your article was a great way for me to brush up on the facts! Thanks! Ben

    • Whitney05 profile image

      Whitney 7 years ago from Georgia

      You are correct, and I have added the location. As for not ever having any sources of credit would make it rather hard to get anything. You have to have at least 3 different credit sources to get approved for a house. So you'd be saving a good while, unless you managed to sell a few big items and bought a very inexpensive house; that or you come from a family of money to begin with.

      One cannot have a good financial reputation without credit. If you have never had a credit card and do not have any sources of credit, you have no credit, which essentially means bad credit. For instance, my boyfriend has no credit cards or sources of credit and has no credit; he cannot apply for anything on his own (IE he can't get a car or house on his own). He hasn't even been able to find a credit card who will give him a line of credit because he doesn't have any to begin with.

    • hospitalera profile image

      hospitalera 7 years ago

      It would be helpful if you include to which country you are referring to. Credit score is differently handled in the USA, UK, Australia for example, also when similarities do exist. You also missed to mention that the best way to maintain a good financial reputation is not to life on credit at all ;-) Buy only what you can afford and save up for what you can't afford yet. Ok, buying a house would be an exception, but apart of that, I don't see the point in living "on credit and credit cards", SY

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