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What's the Most Important Thing to Understand About Credit Scores?

September 1st, 2023 | 10 min. read

What's the Most Important Thing to Understand About Credit Scores?

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Credit. It's a scary topic. Mainly because so many things can surprisingly ruin your credit scores, such as late or missed payments, applying for more credit cards, carrying high credit card balances, ignoring your credit report, and more.

bubble-familyUnfortunately, ways to improve credit aren't talked about much, and many factors go into it, so it's understandable why you're searching for answers. Trust me, I've been in your shoes where I didn't know much about credit scores—and not knowing led to making mistakes that affected my everyday life. So, I'm here to help you avoid making the same or similar mistakes in your credit repair journey so you can take the necessary steps to gain control of your financial health.

Since this is an essential part of your financial health, I'm going to share how your credit score works and tell you what actionable steps you need to take to help increase and maintain your credit score. Plus, there's a handy Credit Score Builder tool for you!


here's what we're about to cover:

Credit-Score-Iconwhat is a credit score? 

Your credit score is a three-digit number ranging from 300-850 based on a credit report, which is information formulated by three reporting credit bureaus - Transunion, Experian, and Equifax. Your score is calculated by multiple factors (which we’ll get to below) and determines your borrowing power. Creditors look at your score to tell if they will get their money back on time; they use your score to see your previous lending activity and more

Membershipwhy is my credit score important?

Credit is essential in the financial world. If you want to open a credit card, buy a house or a car, get home or car insurance, or even get a new cell phone, your credit is going to be evaluated. Your credit score gives lenders an idea of how you handle money and base things such as the interest rate you pay on how your score looks.

Simply put, the better your credit score, the better your interest rate! That means more money in your pocket. Don't believe me? Take a peek at this rate comparison chart for a 60-month, $20,000 auto loan to see how drastically your payments and the total amount paid over the life of the loan can be impacted.

Interest Rate
Monthly Payment
Interest Paid
Total Paid
670 - 699
640 - 669
610 - 639
540 - 609

*All rates are for demonstrative purposes only.

Checklist-Iconwhat factors go into a credit score?

  • Payment History (35%): Your account payment information, including any delinquencies and public records. Just one 30-day late payment can drop your score by more than 60 points.
  • Amounts Owed (30%): How much you owe on your accounts. The amount of available credit you’re using on revolving accounts is heavily weighted. You want to keep your overall use below 30% of your available credit for the best score in this category.
  • Age of Accounts (15%):  How long ago you opened accounts and time since account activity. Creditors like to see some experience.
  • Types of Credit (10%): The mix of accounts you have, such as revolving credit (automatically renewed as debts are paid off like a credit card) and installment credit (fixed payments that are made over a certain term, like an auto loan or mortgage)
  • New Credit (10%): Your pursuit of new credit, including credit inquiries and the number of recently opened accounts. HINT: the fewer, the better.


Im-New-Here-Iconwhat's considered a good credit score?

Your credit score ranges from 300-850 and is based on what’s on your credit report. The higher your credit score, the more confident lenders feel about you borrowing their money. The Fair Isaac Corporation (FICO) is the most common credit-scoring program creditors use to make accurate and fair decisions about creditworthiness.    

Here's how FICO scores are rated, with the percentages based on the average score for Americans:

Application-Paper-Checkmark-Iconhow can i establish credit?

  • Get a Co-Signer: This is someone (like a parent or spouse) who has already built up credit and has proven to lenders they’re responsible with their loans. Co-signing can be mutually beneficial because it might help build credit for you and the signee. However, by becoming a co-signer, that person has legally tied him or herself to your loan, so if you have trouble paying off the loan, it becomes the signee’s problem, too, and could ultimately hurt them or their credit.
  • Open a Secured Credit Card or Share-Secured Loan: A secured loan requires a cash deposit that becomes the line of credit for that account. For example, if you put $500 in the account, you can charge up to $500 on a secured credit card.
  • Find a Lender who Allows First-Time Borrowers: Of all the options, this is the riskiest for the lender. Most lenders like to see some credit built before approving a loan. Skyla understands you can’t build credit overnight, so we’re happy to meet with you to determine the right starter loan for you!

Tools-Iconhow do i improve and maintain credit? 

With so many factors used in determining your credit, we can’t forget the many factors required to ensure you keep a good credit score. In addition to the steps to take to repair it. Take a look at some of the most important steps you can take to get started:

  • Know What’s on Your Credit Report: It's helpful to know what lenders are seeing under the credit reporting agencies - Transunion, Experian, and Equifax. By law, consumers can check their credit reports for free once a year. If you haven't done so already, you can order your free reports here. If there is any incorrect information that can negatively affect your scoring, contact the credit bureau and the organization that provided the wrong information to the bureau. Here is more on how to fix errors on your credit reports. 
  • Pay On-Time: Missed or late payments can have a major negative impact on your score. A 30-day late payment could decrease your score by 60 points.
  • Get Current: If you’re behind on your payments, get current and make an effort to stay current. Your score should increase the more you’re on time.
  • Keep Balances Low: On revolving credit, such as a credit card, make sure to keep your balance low. You should also try to keep your utilization under 30%.
  • No New Cards: Lenders want to see a healthy amount of credit lines open, but not too many. Plus, opening a lot of new accounts while you’re trying to build credit may hurt as rapid account buildup looks risky.
  • Don't Close Cards: Remember, the length of credit history and available credit both play a factor in your score. If you find an old credit card you haven’t used in a while, dust it off and use it for a week to keep it active.
  • Be Responsible: Credit cards and installment loans help build credit, but lenders need to see a score that reflects responsibility. Don’t open a line of credit unless you’re confident you can manage it.

Life-Saver-Iconwhat actions can hurt my credit score?  

  • Missing Payments: This affects your credit score by 60-100 points.
  • Shopping for Credit Excessively: Plan for no more than 2-4 inquiries per year.
  • Reaching the Limit on Credit Cards: You lose approximately 1 point for every % used on your credit card limit. 
  • Opening Numerous Lines of Credit in a Short Time Frame: A good rule of thumb is to look into no more than two accounts per year.
  • Closing Credit Cards Out: This could lower your average length of credit, which can hurt your score.
  • Borrowing from Finance Companies: Anytime you borrow, it allows the lender to run your credit report which results in a hard inquiry that could lower your credit score by 5 points.



"When fixing your credit, don't feel like it's something beyond your control. It’s very much within your control. It may not be instantaneous, but having a good credit score is absolutely achievable, and we're happy to help!"

- Susan Espinosa, VP Member Experience at Skyla Credit Union



ready to tackle your credit score? 

Whether you're starting to build your credit or trying to repair it, you won't see a change overnight. Be patient with yourself and the process because none of the actionable steps above are quick fixes. With this information, you now know what to do to physically improve your credit score. You can now tackle it confidently because you know what to look at. To help you stay on track with your credit score repairing goals, here's what's waiting for you.


grab your freebie

Tackle your credit score goals in your free time with this! Download your free Credit Score Builder to get started. 

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As the Content Specialist and author of the Learning & Guidance Center, Yanna enjoys motivating others by uncovering all that's possible in the world of finance. From financial tips and tricks to ultimate guides and comparison charts, she is obsessed with finding ways to help readers excel in their journey towards financial freedom.


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