Millions of Americans face difficulties related to low credit scores, which can significantly impact access to loans, credit cards, rental housing, and even employment opportunities. Understanding how credit scores are calculated and how to improve them is key to long-term financial health.
Credit scores are primarily determined by five factors: payment history, amounts owed, length of credit history, new credit, and credit mix. The most widely used score, the FICO Score, ranges from 300 to 850. A score above 700 is generally considered good, with anything above 800 deemed excellent.
Payment history is the most critical factor, accounting for 35% of the score. Timely bill payments, therefore, have the greatest impact. Amounts owed make up 30% of the score, so it’s important to keep balances low relative to credit limits. The length of credit history, comprising 15% of the score, rewards long-standing accounts. New credit and the types of credit used (credit mix) each contribute 10%.
To improve a credit score, experts recommend consistently paying bills on time, reducing outstanding debt, avoiding new credit applications unless necessary, and regularly monitoring credit reports to dispute errors. Over time, even small steps can result in meaningful score improvements, creating more financial opportunities and greater economic stability for individuals.
Financial literacy efforts and access to free credit monitoring tools are also helping more people understand and take control of their credit health.
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