Understanding Your Credit
An interactive guide to building, understanding, and mastering your financial reputation.
What is Credit?
It's more than just a number—it's your financial trustworthiness.
Credit is a fundamental concept in modern finance. It's an agreement where you receive money, goods, or services now and promise to pay for them in the future, usually with interest. Lenders, like banks and credit card companies, use your credit history to determine how likely you are to repay your debts.
Essentially, good credit tells lenders you're a reliable borrower, opening doors to better financial products and lower interest rates.
Deconstructing Your Credit Score
Your FICO® Score is calculated from five key categories. Hover over the chart to see how each piece contributes to your overall score.
The Five Factors
Hover over a section of the chart to learn about each factor that influences your credit score. Understanding these is the first step to improving your financial health.
Payment History (35%)
This is the most critical factor. It tracks whether you've paid past credit accounts on time. Late payments, bankruptcies, and collections can have a significant negative impact.
Amounts Owed (30%)
This refers to your credit utilization—how much of your available credit you're using. Keeping balances low on credit cards and other revolving credit is a key to a good score.
Length of Credit History (15%)
A longer credit history generally increases your score. This includes the age of your oldest account, newest account, and the average age of all your accounts.
Credit Mix (10%)
Lenders like to see that you can manage different types of credit, such as credit cards, retail accounts, installment loans (like a car loan), and mortgages.
New Credit (10%)
This looks at how many new accounts you've recently opened and how many hard inquiries you have. Opening too many new accounts in a short period can be seen as risky.
Types of Credit
Credit comes in different forms. The two most common are revolving and installment. Use the toggle to compare them.
Revolving Credit
This type of credit gives you a limit you can borrow against. You can use it, pay it back, and use it again. You're not required to pay the full balance each month, but you must make at least the minimum payment.
- ✓ Flexibility: Borrow and repay as needed up to your credit limit.
- ✓ No Fixed End Date: The account remains open as long as you and the lender agree.
Common Examples:
Credit Cards, Home Equity Lines of Credit (HELOCs), Personal Lines of Credit.
Installment Credit
This is a loan for a specific amount of money that you repay in equal, regular payments (installments) over a set period. The account is closed once the loan is fully paid off.
- ✓ Predictable Payments: You know exactly how much you owe each month and when it will be paid off.
- ✓ Fixed Purpose: Typically used for large, specific purchases.
Common Examples:
Mortgages, Auto Loans, Student Loans, Personal Loans.
How to Build & Improve Your Credit
Building good credit is a marathon, not a sprint. Consistently practicing good financial habits is the key to success.
Pay Your Bills On Time, Every Time
This is the single most important factor. Set up automatic payments or reminders to avoid missing a due date.
Keep Credit Card Balances Low
Aim to use less than 30% of your available credit limit. High utilization can signal financial distress.
Don't Open Too Many Accounts at Once
Each application can result in a hard inquiry, which can temporarily lower your score. Space out applications.
Check Your Credit Reports Regularly
Review your reports from Equifax, Experian, and TransUnion for errors. You can get free copies annually.
Keep Old Accounts Open
Closing old credit cards can shorten your credit history and increase your utilization ratio, both of which can lower your score.
Have a Mix of Credit Types
Responsibly managing both revolving and installment debt can positively impact your score over time.
Disclaimer
The information provided on this website is for educational and informational purposes only. It is not intended to be, and should not be construed as, financial, legal, or investment advice. You should consult with a qualified professional before making any financial decisions.