Your Credit Score

The story: Same card, different scores

Alex and Jade compare credit cards with the same limit. Alex uses almost all of it, Jade uses a little, and their scores differ.

1. Narrator: Alex and Jade are both 19. Each has one credit card with a $500 limit. Their scores are different.
2. Alex: I always pay on time. But I use almost my whole limit, about $450 every month.
3. Jade: I pay on time too, and I keep my balance under $100.
4. Narrator: Alex uses 90% of the limit. Jade uses 18%. That share is called utilization, and lower usually scores better.
5. Narrator: Payment history matters most. How much of your limit you use comes next. Length of history, new credit and credit mix count less.
6. Alex: So paying on time and keeping balances low is most of it. The rest takes time.
7. Narrator: Pay on time, keep balances low, give it time.

What you’ll learn

1. A grade from your report

   A credit score is a number made from your credit report. Lenders use it to guess how likely someone is to repay. It can affect loan rates, deposits for phones and utilities, and apartment applications.

2. What counts most

   Most scores weigh payment history most, then how much of your credit limit you use. Length of credit history, new credit and your mix of credit count less. Exact weights differ by scoring model.

3. Utilization

   Utilization is how much of your credit limit you’re using. Lower usually scores better, and paying in full each month helps keep it low.

   Example: $150 balance ÷ $500 limit = 30% utilization.

4. Many models, a few myths

   There are many scoring models, so the same person can see different scores. Checking your own score doesn’t hurt it. Carrying a balance doesn’t help: paying in full builds the same history without interest.

Key words

credit score

a number made from your credit report that lenders use

credit limit

the most you can borrow on a card or credit line

utilization

how much of your credit limit you’re using

scoring model

a formula that turns a credit report into a score

Common questions

How long does it take to build a score?

Most models need some months of history to give a score, and longer to build a strong one. Time and on-time payments do most of the work.

Remember this

Pay on time, keep balances low, give it time.

Try it: Play myth or fact

1. Use the sample myth-or-fact cards from this lesson.
2. Play alone, or with a friend or family member.
3. For each myth, say the fact that replaces it.

Play myth-or-fact with the sample cards, alone or with a friend or family member.

Live facts

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

• What a credit score is, and score ranges

  Source: CFPB(opens in a new tab)

• Credit reports and scores: your rights

  Source: CFPB(opens in a new tab)