Your Credit Score: The Grade

The story: Jade’s card balance

Jade and a coworker, Ana, talk at a kitchen table while a bar showing how much of a card limit is used drops from high to low.

1. Narrator: Jade wants a better rate on a car loan. Ana, a coworker, asks how Jade’s credit looks.
2. Jade: I keep a balance on my card every month. Someone told me that builds credit.
3. Ana: That’s a myth. Paying in full builds the same on-time history, with no interest.
4. Jade: I also never check my score. I heard checking hurts it.
5. Ana: Checking your own score never hurts it. Paying on time counts most, then using a small part of your limits.
6. Narrator: Jade pays the card down from most of the limit to a small part of it. The score starts to climb.
7. Narrator: On time, a little, for a long time: that’s what scores reward.

What you’ll learn

1. What a score is

   A credit score is a number that guesses how likely you are to pay on time. Lenders, landlords and, in most states, insurers use it to say yes or no and to set prices. The range depends on the scoring model (see the card).

2. What counts most

   Payment history counts most, then how much of your credit limits you use. Length of history, new credit and your mix of accounts count less. Your income isn’t part of a credit score.

3. Utilization, in plain words

   Utilization is your card balances divided by your card limits. Using a small part of your limits tends to help a score. Paying balances down lowers utilization fast, because it’s figured from your latest reported balances.

   Example: a $300 balance on a $2,000 limit is 15% used.

4. Two myths that cost money

   Myth: checking your own score hurts it. It doesn’t. Myth: you must carry a balance to build credit. You don’t; paying in full builds the same history with no interest. Different scoring models, like FICO and VantageScore, can give different numbers.

Key words

credit score

a number that guesses how likely you are to pay on time

utilization

how much of your credit limits you’re using

scoring model

the formula that turns a credit report into a score

credit mix

the kinds of credit you have, like cards and loans

Common questions

How long does it take to get a score?

It depends on the scoring model. Some can score a new account after a month or two; others need about six months of history. After that, time and on-time payments do most of the work.

Does paying rent build credit?

Only if the rent is reported to a credit bureau. Some landlords and rent-reporting services do this. It’s worth asking about any fee first.

Remember this

On time, a little, for a long time: that’s what scores reward.

Try it: Work out your utilization

1. List each card’s balance and credit limit, or use the example numbers.
2. Divide each balance by its limit.
3. Add up all balances and all limits to see your total share used.

Work out balance ÷ limit with your own balance and limit, on paper or a phone calculator.

Live facts

Numbers that change over time, with when they were last checked and where they come from.

• Credit score ranges by scoring model

  Source: ConsumerFinance.gov(opens in a new tab)

• What goes into a FICO score

  Source: FICO(opens in a new tab)