A 3-Minute Guide to Understanding Credit Scores

A credit score is a number that lenders use to determine your responsibility level when it comes to paying off your debts. Think of it like this:

The better your credit history, the better your scores — and the better you’ll look to lenders. 

The most widely used credit scores are issued by an agency called FICO¹. Their credit scores range from 300 to 850, with the U.S. average clocking in at 711. 

If you’re wondering where you stand, you can get a FICO® Score for free here. 

(Don’t worry: Checking your credit scores online counts as a “soft pull” — and will not lower them.) 💚 

If you’ve never used credit before, then there’s a chance you might not have any credit scores yet. And if you’ve used credit in the past, but have made some mistakes — think: paid bills late — then your credit scores might be on the low side.

Credit agencies base your scores on the information in your credit reports. (Yep, we said reports — you’ve got three! You should check them each year for accuracy.) 

We’ll focus on FICO’s scoring model, since its scores are the most widely used. Here’s what counts toward your FICO® Scores, in order from most to least important:

• Payment history (35%): Do you pay your bills late? Have you missed any payments? The single most important factor in your credit scores is paying your bills on time, every time.  
• Amounts owed (30%): How much of your available credit are you using? Lenders like to see low credit utilization ratios; if all your cards are maxed out, they’re probably not going to want to pile more credit on your plate. 
• Credit history (15%): How long have you been using credit? Hint: This is why it’s good to keep your oldest credit card open. If you close it, it’ll reduce your average age of accounts. 
• Credit mix (10%): Which types of credit do you hold? Do you have only credit cards, or do you have a mortgage, too? (This one isn’t a huge deal, so don’t go signing an auto loan simply to improve your credit mix!)
• New credit (10%): How much credit have you taken out recently? If you’ve just opened a flurry of new accounts, lenders might assume you’re struggling financially. 

To put it simply: Good credit scores open many doors in life. 

When you have good credit, it’s easier to get approved for loans, apartments, and utilities (many cell phone providers run your credit, too!) Some employers even consider your credit in hiring decisions. 

And, once you’re approved for a loan, having strong credit scores can also snag you lower interest rates. Though a single percentage point may not sound like a lot, it adds up. 

Let’s say you’re buying a $200,000 house with a 5% down payment. If your mortgage’s interest rate is 4%, you’ll pay $136,522 in interest over 30 years. But if you had better credit and could land a 3% interest rate, you’d save $38,145 over the lifetime of your mortgage. 

When it comes to good scores vs. bad scores, here’s what FICO says: 

Translation: Anything above 670 is considered “good,” and will make it easier to secure loans and lower interest rates. (Looking for specifics? Here’s what a good credit score in your 20s and 30s looks like.)

But even if you’re in the “fair” range, you can probably still get a loan. It’s when your scores are “poor” that lenders are going to view you as a risky borrower, making it tough to get financing. 

If your credit scores fall at the lower end of the spectrum, remember: They’re based on your past credit behavior, nothing more. They’re not a judgment on you as a human — and they’re not permanent.  

We said it before and we’ll say it again: That good credit can help you go far in life. And here at Chime, we want to help you open as many doors as you can.

That’s why we designed Chime Credit Builder Visa® Credit Card: a secured card specifically for people who want to build their credit scores over time. In fact, after using the card, our members’ scores increased by an average of 30 points.²

That’s not the only way to improve your credit, though — this article, for instance, lists seven steps for improving your credit. This one might help, too. 

The important thing is to view your credit building journey as a marathon, and not a sprint. Even if it takes a while, we promise your responsible use of credit will eventually pay off!