What goes into a credit score? Why is a credit score important?

A silhouette of a person moves the dial on a semicircular gauge from "fair" towards the "good" section, with sections labeled from "bad" to "excellent" in increasing order.

You’ll often hear a lot about credit scores and how important they are to your financial future. But do you know what a credit score is, exactly, and what goes into a credit score? It can sound confusing, so we’re breaking it down here:

What a credit score is: a prediction of your likeliness to repay a loan, based on your past behavior. It’s used to determine things like your interest rate and credit limit for credit cards, as well as mortgages, auto loans, and any other product where money is loaned to you.

Who determines your credit score? The credit reporting bureaus are private companies called Experian, Equifax and TransUnion.

What goes into your credit score?

  • Your bill-paying history (if you pay your bills on time).
  • Your unpaid debt (and it’s good to have some debt).
  • The number and type of accounts you currently have (not too many; you don’t want to look overextended)
  • How long your accounts have been open (the longer, the better)
  • How much of your credit you’re using (ideally, not too much)
  • New applications for credit (not too many)

This should give you a better idea of what goes into your credit score, and why lenders use them to determine what kind of credit product to give you. Next, we’ll look at how you can improve your score.

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