Your Credit Score: The Definitive Guide (2022)

By Brooke Vaughan

How to improve credit score

This is a complete guide to your credit score in 2022. In this guide, you’ll learn: 

  • What makes up a credit score
  • What is considered a good FICO Score and VantageScore
  • Why it’s important to have a good credit score
  • How to improve your credit score
  • How to check your credit score

Table of Contents

Credit Score Basics

In this section, you’ll learn what a credit score is, the biggest contributors to your credit score, and why you might see an increase or decrease in your scores.  

What is a credit score?

A credit score is a numerical representation of your creditworthiness and how likely you are to repay borrowed money. It is based on the information in your credit report. Service providers, lenders, and other financial institutions look to your credit scores to decide whether or not to approve you for a loan, credit card, or other financial assistance.

When you use credit, the lender or service provider reports your data to three notable credit bureaus: Equifax, Experian, and TransUnion. Then credit scoring agencies input the information from your credit report into their credit scoring models to come up with your credit score. 

There are many different scoring models, but FICO Score and VantageScore are the most popular. Your credit score ranges from 300–850. The higher the credit score, the more trustworthy you are with borrowed money in the eyes of creditors. 

What makes up your credit score? 

There are several factors that play heavily into your credit scores. 

Payment history

How reliable are you with paying bills and debts by their due dates? If you pay your bills on time, your payment history will positively impact your credit score.

If you miss a credit card payment, your credit card issuer can report it to the credit reporting agencies. This can lead to a negative mark on your credit report, and your score will go down.

For your FICO Score, payment history accounts for 35% of your credit score. For VantageScore, your payment history is considered moderately influential. 

If you are not able to pay a bill or credit card balance in full, at least make the minimum payment. A minimum payment is better than no payment at all. A missed payment could land you a late fee and get reported to the credit reporting agencies, causing your score to drop.

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Credit utilization

What percentage of your total credit are you using? Credit scoring agencies encourage borrowers to keep credit utilization below 30%. If you have a card with a $1,000 credit limit, your maximum credit card balance should only ever be $300 or less.

For your FICO Score, credit utilization accounts for 30% of your credit score. For VantageScore, your total credit usage, balance, and available credit are considered extremely influential. 

To decrease your credit utilization, you can request higher credit limits on your current credit cards without increasing your spending. You can also try to decrease the amount that you charge to your credit card.

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Credit history length

How long have you had credit? If you’ve used credit for a long time (and used it responsibly), it will positively impact your score. However, if you have not been using credit for a long time, or if you’ve been irresponsibly using credit for a while, it can negatively affect your score. 

For your FICO Score, credit history length accounts for 15% of your credit score. For VantageScore, the age of your credit history is considered less influential. 

Before closing a credit account, take credit history length into account. If you are responsibly using the credit and it is an old account, you might want to leave the account open. This can keep your score higher. If you close the account, you run the risk of decreasing your score.

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Credit mix

How many different types of accounts are in your portfolio? The more diverse your portfolio is, the more positively your credit mix will impact your credit score.

Credit can be divided into two prominent categories: revolving credit and non-revolving credit.

  • Revolving credit: a type of credit that you can repeatedly use up to a certain limit and pay back over time (e.g. credit cards)

  • Non-revolving credit: a type of credit issued as a lump-sum on a one-off basis that you have to repay in installments over a fixed period of time (e.g. mortgage, car loan, personal loan)

For your FICO Score, credit mix accounts for 10% of your credit score. For VantageScore, your credit mix and experience are considered highly influential.

Different types of credit carry varying degrees of risk. Diversifying your portfolio should be done intentionally and not for the sake of boosting your credit score.

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New credit

How much credit has been opened or attempted to be opened recently? New credit can cause your score to dip slightly. Things that qualify as new credit include:

  • Opening a new credit card

  • Taking out a loan

  • Hard inquiries by financial institutions or lenders before making a lending decision

For your FICO Score, new credit accounts for 10% of your credit score. For VantageScore, new accounts are considered less influential.

Although new credit can hurt your credit score, the dip is usually small and short-lived. You should try to avoid opening new accounts or taking out loans regularly. Remember that new credit can also allow you to diversify your portfolio or improve your credit utilization in the longer term.

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Why does your credit score change?

Your credit scores fluctuate with your credit usage. Creditors and other companies are continually reporting your credit information to the credit bureaus. That includes credit card usage, loan information, and even utility payments in some cases.  

If you take out a loan or use a credit card and consistently make on-time payments, your credit scores will increase. This is because you’ve proven that you are a responsible borrower, and you will be rewarded in the form of a credit score boost. 

On the other hand, if you have a recent late payment or missed payment, your score will decrease. 

Most things that you do with credit impact your credit score. Over time, credit activity will impact your score less and less. For instance, if you miss a payment today, you may see a significant drop in your credit score. However, that missed payment will have a smaller impact on your scores two years from now. 

It’s important to stay vigilant about your credit usage. One mistake, while it may sting at the moment, will likely not be a big deal. But if you consistently use your credit poorly, it can have lasting negative consequences. 

Man dressed in a suit sits behind a desk holding a credit score ranking as good

A Brief History of Credit Scores

In this section, you’ll learn when (and why) credit scores as we know them today came to be. 

When did credit scores start? 

In 1956, engineer Bill Fair and mathematician Earl Isaac developed the first credit scoring model — what would become known as the FICO Score. Credit bureaus have been around since the 1800s, but determining someone’s creditworthiness was largely based on qualitative data and personal characteristics, like race, income, employment status, and more. 

Businesses were popping up left and right, and people needed credit in order to keep up with the ever-expanding world of mass consumerism. The U.S. required a more statistical approach to determine someone’s likelihood of repaying debt. 

By the late 1970s, most creditors looked to consumers’ credit scores to decide yay or nay on granting them a loan or financial service. 

The FICO system as we know it today — a score ranging from 300–850 that fluctuates based on payment history, credit utilization, length of credit history, and more — debuted in 1989. 

Credit report with red pen and check mark next to Excellent

Do You Have a Good Credit Score?

In this section, you’ll learn how the two most popular credit scoring models in the U.S. — FICO Score and VantageScore — classify your creditworthiness on a scale of poor to excellent. 

What is a good FICO Score?

FICO credit scoring ranges from 300–850. A good FICO Score lands between 670 and 739. In 2021, the average FICO Score was 714, according to Experian.

  • Exceptional: 800+
  • Very good: 740–799
  • Good: 670–739
  • Fair: 580–669
  • Poor: Less than 580

What is a good VantageScore?

Like FICO, the two newest versions of VantageScore (VantageScore 3.0 and VantageScore 4.0) range from 300 to 850. However, since the information that is included in VantageScore’s algorithms is different, the scores are also different. A good VantageScore sits between 661 and 780, with an excellent credit score being 781 or above.

  • Excellent: 781–850
  • Good: 661–780
  • Fair: 601–660
  • Poor: 500–600
  • Very poor: 300–499

What credit score do you start at? 

Your credit score doesn’t start at zero, and it doesn’t necessarily start at 300 (the lowest end of the spectrum). If you don’t have a credit history, you simply don’t have a credit score. 

Your score is first calculated when a lender or other company inquires about your score to determine your creditworthiness. Your initial score will be based on your earliest credit habits. If you started out with poor credit habits, like making payments late, it will likely be very low. 

The more that you utilize credit and show that you are a responsible borrower, the quicker your score will increase. 

Leasing agent handing a set of keys to new apartment tenants

Why Is It Important to Have a Good Credit Score?

In this section, you’ll learn why a good credit score is important for not only your finances but your personal life and career too. You’ll also see how lenders and other companies put your scores to use, as well as why all of those credit scores are necessary in the first place.  

Credit scores determine a lot of the personal and financial opportunities available to you. Good scores mean better deals. Your credit scores dictate how likely you are to be approved for a loan, which cards you’re able to apply for, and what the rates and terms of your loans, credit cards, and insurance premiums will be.

On a more personal level, your credit score can also determine whether you’re approved for jobs, apartment or home rentals, utility services, and phone plans. With a higher credit score, lenders and companies will more likely approve your application.

How is your credit score used?

When you apply for credit or a service that requires a credit check, the creditor or service provider will run a hard inquiry or soft inquiry on your credit file. Your credit score and the information in your credit report will tell them your creditworthiness based on how responsible you’ve been with credit in the past. 

If you have a poor credit score, lenders perceive you as more of a credit risk, and you will miss out on financial products, services, and money-saving opportunities.

Any number of creditors or companies may look to your score to determine whether they want to provide you with a loan or credit card. These creditors or companies may include: 

  • Loan providers
  • Credit card companies
  • Insurance providers 
  • Landlords 
  • Leasing companies
  • Potential employers
  • Phone service providers
  • Utility companies
Man holds paper displaying credit report and credit score over desk covered in supplies

Why are there different credit scores?

There are tens of thousands of data furnishers in the U.S. A data furnisher is any entity that supplies data to one or more of the three major credit bureaus. 

Not all data furnishers report data to each credit bureau, meaning that the information that one credit bureau uses to create your credit report may differ from the information that another one uses. 

Additionally, each credit scoring agency, which uses the information in your credit report to determine your credit score, has its own credit scoring system. For instance, your FICO Score weighs your payment history more heavily than your VantageScore does. While the credit scores between the two will likely not be significantly different, there may be slight differences between the two. 

Beyond that, some credit scoring agencies break your score down even further. In addition to your base credit score, you can also have an auto score, mortgage score, bankcard score, installment loan score, and personal finance score. 

Why do credit scoring agencies calculate all of these individual scores? Well, it’s for the benefit of the creditors and companies checking your scores. If you apply for an auto loan, the lender can specifically pull information from your auto credit score to see what kind of borrower you’ve been when it comes to your auto loan history. It provides them with a more accurate picture so they can decide whether to grant you the loan. 

Overhead photograph of cup of coffee and credit score

Managing Your Credit Score

In this section, you’ll learn actionable tips to improve your credit score. And if you don’t have a credit score, you’ll see what you can do to kickstart your credit journey.  

How to improve your credit score

If you’re looking for ways to improve your credit score, you should focus on the areas of your credit history that scoring models deem most important.

Make your payments on time

Pay your bills on or before the due dates, even if you’re only able to do the minimum amount. If you have trouble remembering payment dates, consider setting up autopay or payment reminders. 

If you have financial trouble making the minimum payment, try restructuring your budget to better incorporate your necessary expenses like loans and credit card payments. You can also consider lowering your credit limit so you’re not tempted to spend more money than you can afford.

Keep your credit card balances low

How much credit you use plays a significant role in your credit score. The lower your credit utilization is, the more lenders and credit card companies feel confident that you can use credit responsibly. 

Experts advise that you use a maximum of 30% of your total credit at a time. That goes for each card individually, as well as all of your cards combined.

Only open credit accounts when you need to

It’s best to minimize hard inquiries on your credit report. Each one causes your score to drop several points. If one credit account is dragging you down, you might want to consider closing it once it’s in good standing. 

However, keeping an account open can give your score a boost, even if you’re using the available credit conservatively.

Check for inaccuracies

Everyone makes mistakes, even credit bureaus. It’s your responsibility to check your credit report for mistakes and outdated information. 

You can dispute poor credit marks with the credit bureaus (as long as you have a reason to dispute, like if you were penalized for a late payment but really made the payment on time). 

Checking your credit report and scores regularly can wind up boosting your score and saving you a great deal of money in the long run.

Sad man rests his head on crossed arms on top of a dash. Piece of paper lays in front of him showing a poor credit score.

What to do if you don’t have a credit score

If you don’t have a credit score, no need to panic. Everyone has to start somewhere. 

If you don’t have a credit score, that just means that your credit file is thin, or that there isn’t enough information in it to generate a score. 

That’s okay! Now it’s time to start bulking up your credit file so that you can have a score to get approved for other credit opportunities, like an apartment or loans, when you need it. 

Here’s what you can do to make your thin credit file thicker

  • Apply for a secured credit card
  • Take out a credit builder loan
  • Become an authorized user on a responsible borrower’s account
  • Make sure your bills are being reported accurately, if applicable
Person cancels subscription on their laptop

How to Check Your Credit Score 

In this section, you’ll learn how you can easily and regularly check up on your credit score, as well as what you should do if you find an error in your credit report that is negatively impacting your credit score. 

You have access to one free credit report per year from each of the three major credit bureaus. Request your credit reports at AnnualCreditReport.com

Try to review them all at once to compare the information. If you find any discrepancies, you can dispute them with the individual bureaus.

What to do if an error is impacting your credit score

If your score seems lower than it should be, it’s possible that there is an error on your credit report. Credit report errors are common, and it’s important that you take care of them in a timely manner to avoid significant financial damage. 

When you find an error, you should dispute it immediately with the creditor or company that reported the information, as well as the credit bureaus.

First, contact the credit bureau directly with your concerns. You will need to let them know if there is inaccurate or incomplete information in your credit file, why you think it’s wrong, and proof of the information in question. 

For instance, if your credit report shows that you have several delinquent payments on a credit card, you will need proof that you made these payments on time.

If you don’t have proof, then it’s best to contact the creditor that reported the information to the credit bureau and ask them for assistance with your claim.

Person orders free credit check on mobile device

Equifax

  • Phone: Call the number on your Equifax credit report, or use (866)349-5191
  • Online: https://www.equifax.com/personal/credit-report-services/credit-dispute/
  • Mail: Print, fill out, and mail a Dispute Request Form to Equifax Information Services LLC P.O. Box 740241, Atlanta, GA 30374

Experian

  • Phone: Call the number on your Experian credit report, or request a copy of your credit report by calling (866)200-6020
  • Online: https://www.experian.com/disputes/main.html
  • Mail: Fill out a Dispute Form and submit it electronically here or mail the printed form to Experian, P.O. Box 4500, Allen, TX 75013

TransUnion

  • Phone: Call the TransUnion Consumer Relations Department at (800)916-8800
  • Online: https://www.transunion.com/credit-disputes/dispute-your-credit-v2
  • Mail: Provide a written letter with the required information found here, and mail it to TransUnion Consumer Solution P.O. Box 2000, Chester, PA 19016-2000

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