credit affectsYour credit scores matter. A great credit score makes it easier to apply for a credit card, boost your credit limit or take out a loan while Less-than-ideal scores may negatively impact your ability to make big purchases or get insurance.

But what exactly is your credit score? How is it calculated? Here’s what you need to know about the factors that influence your scores and how you can improve your scores over time.

The importance of knowing your credit score

Your credit score is a number — between 300 and 850 — that reflects your overall creditworthiness. It takes into account current debt and credit loads, any defaulted payments or bankruptcies and your credit history (if any). The higher the number the better your credit score, and values are typically broken down into five broad categories:

  • Below 620 — Bad
  • 620 or higher — Below average
  • 670 or higher — Average
  • Around the 700s — Good
  • Over 750 — Exceptional

Your credit scores will often be reported on your monthly credit card statement; if not, contact your card issuer directly or purchase your score from a credit-reporting agency. You’re also entitled to a free credit report once each year from the three major credit bureaus — Equifax, Experian and TransUnion. While this report doesn’t include your credit score, it does provide a more holistic picture of your current credit situation with details about bill payments, outstanding loans and current debt. It’s a good idea to regularly review your credit reports for any errors and correct them.

Some factors — such as your current assets or total net worth — don’t impact your credit score. The most popular credit scoring model, FICO, uses a combination of five key factors to determine your score, including payment history, amounts owing, length of credit history, new credit applications and your overall credit mix.

Financial impacts of credit

Solid credit scores make it more likely that lenders will approve your application for car loans, mortgages, new credit cards and credit extensions because it indicates greater reliability in making on-time payments and keeping your debt-to-income ratio under the recommended 43%. Lower scores suggest that you may default on payments or max out your credit cards without the ability to pay.

Consider a car loan application: on average you’re asking for $40,000 to buy a new car, so the dealership runs a credit check. If your credit score is low, the financing company used by the dealership may consider your application high-risk. As a result, your application may be rejected, or you may be offered a loan with substantially higher interest rates.

Put simply? Your credit scores have a significant impact on your financial life, from giving you room to breathe with higher limits to securing financing for car or home purchases.

Personal impacts of credit

Your credit scores can also impact your personal life. Many companies run credit checks during the application process if you’re applying for a job or looking for insurance. While these businesses can’t see your exact credit scores, they can request your credit reports with your permission, which gives them a good sense of your current financial status.

In the case of insurance, a credit report that includes defaulted loans and missed payments may result in your application being denied if the company deems you at-risk to default on monthly payments.

When it comes to a job, meanwhile, employers looking for staff to handle financial transactions may worry that your financial troubles could lead to bad decisions and put the company at risk.

It’s also worth considering the stress of bad credit scores. If you’re already struggling to make minimum payments and ensure loans are kept up-to-date, bad credit scores can negatively impact your mental health. Add in calls from debt collectors if you’re behind on payments, and it’s easy to see how bad credit can become a serious, ongoing issue.

Tips for building credit

So how do you start building or rebuilding credit? It’s worth applying for a low-limit or secured credit card in both cases; these cards require an upfront deposit to “secure” your credit, and this deposit is often your credit limit.

It’s also a good idea to review your credit reports for any errors and correct them as soon as possible to ensure they don’t negatively impact your score. Having a plan to always make your minimum payments and pay your bills on time also matters to your overall credit score. Finally, make sure you’re effectively managing your credit utilization ratio. While it may not be possible to get your ratio down under 10%, aim for 30% or lower wherever possible. If you need help, ask for lower credit limits or set spending alerts on your cards to ensure you stay on track.

If you’re considering a secured credit option but aren’t sure where to start, check out our guide to the best secured cards for rebuilding credit.


Your credit score affects your everyday life. Great or exceptional scores make it easier to land loan approvals or extend your credit limit, while poor or very poor scores make it difficult to find insurance or get a job — and can cause serious, ongoing stress.

Get back on track by regularly reviewing your credit reports, making payments on time and applying for a secured card that lets you slowly, surely and securely build better credit.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.