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Smart Money

A 3-Minute Guide to Understanding Credit Scores

Want to learn how to improve your credit scores? Then you’re in the right place. Keep reading for snappy answers to four of the most common questions about credit.

Susan Shain • April 5, 2021

In This Article

  1. What is a credit score?
  2. How is your credit score determined?
  3. Why are credit scores important?
  4. What’s a good credit score?
  5. Ready to whip your credit into shape?

Want to learn how to improve your credit scores — and understand why the heck they matter anyway — without reading through 12 pages of snooze-inducing text?

Then you’re in the right place. Keep scrolling for snappy answers to four of the most common questions about credit.

What is a credit score?

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.

How is your credit score determined?

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. 

Why are credit scores important?

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. 

What’s a good credit score?

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

FICO® Score RangeRating


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.  

Ready to whip your credit into shape?

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! 


How can Credit Builder help my credit score?

Credit Builder offers features that help you stay on top of key factors that impact your credit score. Consistent use of Credit Builder can help you build on-time payment history, increase the length of your credit history over time, and more. We report to the major credit bureaus – TransUnion®, Experian®, and Equifax®.  

Learn more about credit building with Credit Builder.

How do I apply for a Chime Credit Builder credit card?

Join the waitlist to get early access to Credit Builder! The waitlist is currently only available to Chime members. New to Chime? Join here.

Each week, we will invite members from the waitlist to Credit Builder. Invited members can complete their applications directly from the home screen of the Chime mobile app–make sure you have the most updated version of our app! You can find your Chime Credit Builder invitation in the Home and Settings screens of your app.

What makes Credit Builder different from traditional credit cards?

Unlike traditional credit cards, Credit Builder helps you build credit with no annual fees and no interest. There’s also no credit check to apply!

Credit Builder is a secured credit card. The money you move into Credit Builder’s secured account is the amount you can spend on the card. Unlike other secured credit cards, that money can be used to pay off your monthly balances. Since Credit Builder doesn’t have a pre-set limit, spending up to the amount you added won’t contribute to a high-utilization record on your credit history.

Learn more about how Credit Builder works.

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1 FICO® Scores are developed by Fair Isaac Corporation. The FICO Score provided by, Inc., also referred to as Experian Consumer Services ("ECS"), in Experian CreditWorks℠, Credit Tracker℠ and/or your free Experian membership (as applicable) is based on FICO Score 8, unless otherwise noted. Many but not all lenders use FICO Score 8.In addition to the FICO Score 8, ECS may offer and provide other base or industry-specific FICO Scores (such as FICO Auto Scores and FICO Bankcard Scores). The other FICO Scores made available are calculated from versions of the base and industry-specific FICO Score models. There are many different credit scoring models that can give a different assessment of your credit rating and relative risk (risk of default) for the same credit report. Your lender or insurer may use a different FICO Score than FICO Score 8 or such other base or industry-specific FICO Score, or another type of credit score altogether. Just remember that your credit rating is often the same even if the number is not.For some consumers, however, the credit rating of FICO Score 8 (or other FICO Score) could vary from the score used by your lender. The statement that "90% of top lenders use FICO Scores" is based on a third-party study of all versions of FICO Scores sold to lenders, including but not limited to scores based on FICO Score 8. Base FICO Scores (including the FICO Score 8) range from 300 to 850. Industry-specific FICO Scores range from 250-900. Higher scores represent a greater likelihood that you'll pay back your debts so you are viewed as being a lower credit risk to lenders. A lower FICO Score indicates to lenders that you may be a higher credit risk.There are three different major credit reporting agencies — the Experian credit bureau, TransUnion® and Equifax® — that maintain a record of your credit history known as your credit report. Your FICO Score is based on the information in your credit report at the time it is requested. Your credit report information can vary from agency to agency because some lenders report your credit history to only one or two of the agencies. So your FICO Score can vary if the information they have on file for you is different. Since the information in your report can change over time, your FICO Score may also change.

2 Based on a representative study conducted by Experian®, members who made their first purchase with Credit Builder between June 2020 and October 2020 observed an average FICO® Score 8 increase of 30 points after approximately 8 months. On-time payment history can have a positive impact on your credit score. Late payment may negatively impact your credit score.

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