What is a Credit Score?

If you've ever signed up for a credit card or tried to make a major purchase like a new car or a house, your credit score was probably taken into consideration. Your credit score is how lenders decide whether or not they can rely on you to make your payments, and it's determined by your credit history.

Credit History

Credit history is made up of a number of factors. The biggest is payment history. If you have utility bills, mortgage payments, or credit cards, are you up-to-date on those payments? Do you always make them on time? If so, it has a big positive impact on your score.

Credit history is also determined by how much debt you have, including credit card debt and loans. The more debt you have, the harder it will be to qualify for loans. The length of your credit history is a factor, so younger people are at a slight disadvantage. If you've only been building credit for a year, your score will be lower than it will ten years from now if you keep the same payment habits.

The two smallest factors are how many lines of credit you've recently opened and whether you have a mix of credit types, like having bills, a car payment, and a credit card, rather than just several credit cards or a mortgage and nothing else in your name. Many credit inquiries in a short space of time will negatively impact your score.

What is a good score?

Credit scores are on a scale from 300 to 850 and are broken up into five categories: Bad (below 600), Poor (600-649), Fair (650-699), Good (700-749), and Excellent (750 or above). Even people with bad and poor credit can qualify for some loans, but the better your score the more chance you have of getting good interest rates and longer loan terms.