What Is a Credit Score
A credit score is a three-digit number that lenders use to decide whether to give you money and what interest rate to charge you. Banks, credit card companies, and other lenders check your credit score before approving loans or credit cards. A higher score means lenders think you are more trustworthy and likely to pay back money you borrow.
How Credit Scores Are Calculated
Credit scores are calculated using a mathematical formula that weighs five different factors from your credit report. The most important factor is your payment history, which shows whether you paid your bills on time. The second most important factor is how much money you owe compared to your credit limits. The third factor looks at how long you have had credit accounts open. The fourth factor counts how many times you recently applied for new credit. The fifth factor considers what types of credit you use, like credit cards, car loans, and mortgages.
Payment History
Payment history is the biggest part of your credit score at 35 percent. This includes whether you paid credit card bills, loans, and other debts on time. Late payments hurt your score more than on-time payments help it. Missed payments, especially very late ones, stay on your credit report for seven years.
Amounts Owed
How much money you owe compared to your credit limits makes up 30 percent of your score. If you have a credit card with a 1,000 dollar limit and owe 900 dollars, that is bad for your score. Experts recommend using less than 30 percent of your available credit. Paying down balances can quickly improve your credit score.
Credit History Length, New Credit, and Credit Mix
The length of your credit history accounts for 15 percent of your score. Older accounts help your score more than newer accounts. New credit inquiries make up 10 percent of your score and show when you have applied for credit recently. Credit mix, which is 10 percent of your score, means having different types of credit like credit cards, car loans, and mortgages helps your score.
Score Ranges and What They Mean
Credit scores typically fall into these ranges: poor (300-579), fair (580-669), good (670-739), very good (740-799), and excellent (800-850). Most lenders prefer scores above 670. A score below 580 makes it harder to get approved for credit or results in higher interest rates. Checking your credit score regularly helps you understand your financial health. 
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