Building Your Credit Score

## Building Your Credit Score Your credit score is a three-digit number (typically 300-850) that represents your creditworthiness. It influences your ability to get loans, the interest rates you are offered, and can even affect apartment applications and job prospects. Building strong credit is one of the most impactful financial moves you can make. ### The Five FICO Score Factors Your FICO score -- the scoring model used by 90% of top lenders -- is calculated from five weighted factors: ### 1. Payment History (35%) This is the single largest factor. It tracks whether you pay your bills on time. - **Even one late payment (30+ days) can drop your score by 60-100 points.** - Late payments stay on your credit report for **7 years**, though their impact diminishes over time. - **Strategy:** Set up autopay for at least the minimum payment on every card. Never miss a due date. ### 2. Credit Utilization (30%) This measures how much of your available credit you are using. - **Formula:** Total balances / Total credit limits x 100 - **Ideal:** Below 30%, but below 10% for the best scores. - Utilization is calculated per card and across all cards. - **Strategy:** Pay your balance before the statement closing date to report a lower utilization. Request credit limit increases periodically. ### 3. Length of Credit History (15%) This considers the average age of all your accounts and the age of your oldest account. - Longer history = higher score. - **Strategy:** Keep your oldest credit card open, even if you rarely use it. Put a small recurring charge on it and autopay it monthly. ### 4. Credit Mix (10%) FICO likes to see that you can handle different types of credit responsibly: - **Revolving credit:** Credit cards, store cards - **Installment loans:** Auto loans, student loans, mortgages - **Strategy:** Do not open accounts just for mix -- but know that having both types helps your score modestly. ### 5. New Credit Inquiries (10%) Each time you apply for credit, a **hard inquiry** appears on your report and can lower your score by 5-10 points temporarily. - Hard inquiries stay on your report for 2 years but only affect your score for about 12 months. - Multiple inquiries for the same type of loan within a 14-45 day window count as a single inquiry (rate shopping). - **Strategy:** Space out credit card applications by at least 3-6 months. ### Building Credit from Scratch If you have no credit history, here are proven starting points: 1. **Secured credit card:** You provide a deposit (often $200-$500) as collateral. Use it for small purchases and pay in full monthly. After 6-12 months of responsible use, you may qualify for an unsecured card. 2. **Authorized user:** Ask a family member with good credit to add you as an authorized user on their card. Their positive history on that account gets added to your report. 3. **Credit-builder loan:** Some credit unions and fintech companies offer small loans specifically designed to build credit history. 4. **Student credit card:** If you are a student, these cards have lower requirements and are designed as first cards. ### Credit Score Ranges - **800-850: Exceptional** -- Best rates on everything - **740-799: Very Good** -- Near-best rates, easy approvals - **670-739: Good** -- Approved for most products - **580-669: Fair** -- Higher rates, limited options - **300-579: Poor** -- Difficulty getting approved, very high rates ### Key Takeaways - Payment history and utilization together account for 65% of your score -- focus there first. - Never close your oldest credit card. - Building good credit takes 6-12 months of consistent, responsible behavior. - Check your credit report for free at AnnualCreditReport.com at least once per year to catch errors.