Person reviews their credit score

What is a credit score? What does it mean? And most important, how can you improve it?

Your credit score tells lenders about your creditworthiness—or how likely you are to pay your bills on time. A credit score is a three-digit number typically ranging between 300 and 850. The higher the number, the more creditworthy you are.

That’s why lenders weigh your credit score when deciding whether to approve you for a loan or credit card.

Your credit score doesn’t only affect your ability to qualify for a loan. It could also impact the interest rate you pay.

Given the role your credit score plays in your financial life, it’s important to check it regularly and do everything you can to keep it strong.

Start by learning these eight facts, and you will be well on your way.

Table of Contents

1. A good credit score makes it easier to borrow

What is a good credit score? The answer depends on where the score comes from, who calculates it, and what it’s being used for. Experian, Equifax, and TransUnion are the three main credit bureaus. There are additional agencies that generate these numbers, each with its own methodology. Because different lenders might use different credit-scoring agencies, a score used by Discover Personal Loans may not be the same as the one used by another lender.

Credit scores, also known as FICO® Scores, fall into different general categories. With a poor-to-fair score (300-669) you might find it difficult to qualify for many credit cards or loans. And if you do qualify, you may have to pay higher fees or interest rates.

With a fair-to-good score (670-739), you might qualify for more options. But you still may not get the best rates or terms.

A very good or excellent score (740-850) could qualify you for the best credit products with the lowest interest rates.

If you’re not quite there yet, you can do a lot to improve your credit health. Among other key financial habits, paying all your bills on time and paying down debt are sure-fire ways to raise your score.

2. Your credit report contains important information

As mentioned above, your credit score might vary depending on the agency that generates it. That’s why it’s a good idea to check more than one source when you check your score. (Your potential creditors might also do the same.)

And don’t stop at the number. Download or print a copy of the full credit report that comes with your score and read it carefully. The report will show you which factors the agency uses to calculate your score, including the number of late payments, the age of your oldest account, and the number of loans you have applied for recently.

Of course, the total amount you owe on loans and credit cards is a big factor in your credit score. But when it comes to applying for a new loan, your debt-to-income ratio (DTI) matters, too.

This measure divides the total of your monthly debt payments by gross monthly income. A balanced DTI usually means strong credit health. A high DTI of 50% or more could suggest that someone might have trouble making payments.

3. Debt diversity may improve your credit health

Varying the kind of credit accounts you use could improve your credit health. For example, someone with only one source of credit (say, a store card) might have a lower credit score than they would if they had the store card, some manageable student loan debt, and a personal loan. Of course, they would also need to stay on top of all these debts.

If you can manage it responsibly and pay all your bills on time, a diverse credit mix can maintain or improve your credit health. This is just the kind of commitment lenders like to see in potential borrowers.

4. The older your accounts, the better

The age of your accounts, including a consistent pattern of on-time payments, can be a sign of credit health. For example, when you take out your first credit line, you will start building credit even though you won’t have a score right away.

People who have held a few different credit accounts for a long time typically have great credit health. So make building credit one of your long-term goals. It takes time to build a reputation, and your credit is no exception.

5. Unpaid fines can hurt your score

Did you know that things like overdue library books or parking tickets can impact your credit score? Depending on where you live, libraries may turn to collection agencies to gather outstanding fines. And municipalities may look to recoup parking fines this way. These inquiries don’t always affect credit health, but it’s better to be on the safe side.

Consistently late rent payments can also affect your credit score. When you miss payments, your landlord or management company might be tempted to report you to the credit bureaus. So make sure to keep up with your rent. And if disaster hits, letting your landlord know about your situation could keep your relationship and your credit healthy.

In other words, it’s a good idea to stay on top of all your bills, wherever they come from, and no matter the amount.

6. Debt can be a good thing

No one wants overwhelming debt. But you don’t need to fear all debt. A manageable amount of debt usually shows that you can navigate your finances effectively. That means you can be trusted by creditors to pay your bills on time.

But if you do feel overwhelmed by your debts, consider using a personal loan for debt consolidation. You might be able to save money in interest if you pay off higher-rate debts with a lower fixed-rate loan. And you might even pay them off faster. What’s more, you could use this as an opportunity to show that you can make payments on time and build your credit.

7. Recent credit activity matters

Applying for a new credit account triggers a “hard inquiry” on your credit report. Many hard inquiries over a short period of time can negatively impact your credit score because they might suggest that you are taking on more debt than you can handle.

That’s why it’s a good idea to apply for new credit only when you really need it, and to think carefully about how that account can help you reach your financial goals.

For example, a personal loan from Discover could give you the cash you need with only one hard inquiry on your credit report. And you can check your rate even before applying without impacting your credit at all. This is what is known as a “soft inquiry” or a “soft pull.”

Checking your own credit score is also a “soft pull,” so it does not impact your credit score or credit history.

8. Monitoring your credit score is the best way to improve it

Look through your full credit report once or twice per year to make sure your information appears correctly. Sometimes people are surprised to find they have missed payments, or that there are fraudulent charges they weren’t aware of. When these issues arise, it’s best to resolve them as soon as possible.

Most important, checking your credit report on a regular basis might show you what steps you can take to improve your credit health.

There are several places to check your score for free. On AnnualCreditReport.com, you are entitled to a free annual credit report from each of the big three credit reporting agencies. Please note that the reports you’ll get on AnnualCreditReport.com do not include your credit score.

Discover Personal Loans does offer our customers a free Credit Scorecard,* which includes your FICO® Credit Score, number of recent inquiries, and more. Your FICO® Credit Score may already affect the interest you pay on everything from everyday purchases to the big stuff. And checking it will never impact your credit score.

In the end, the best way to improve your credit score is to understand what it measures. Then you can take steps to improve it if you need to.

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*FICO® Credit score Terms:

Your FICO® Credit Score, key factors and other credit information are based on data from TransUnion® and may be different from other credit scores and other credit information provided by different bureaus. This information is intended for and only provided to Primary account holders who have an available score. See Discover.com/FICO about the availability of your score. Your score, key factors and other credit information are available on Discover.com and cardmembers are also provided a score on statements. Customers will see up to a year of recent scores online. Discover and other lenders may use different inputs, such as FICO® Credit scores, other credit scores and more information in credit decisions. This benefit may change or end in the future. FICO is a registered trademark of the Fair Isaac Corporation in the United States and other countries.