Understanding Credit Scores: A Complete Guide for Beginners

Your credit score is a three-digit number that lenders use to evaluate your creditworthiness. It ranges from 300 to 850, with higher scores indicating lower risk to lenders.

The five factors that determine your credit score are payment history (35%), credit utilization (30%), length of credit history (15%), credit mix (10%), and new credit inquiries (10%).

Payment history is the most important factor. Even one late payment can significantly impact your score. Set up automatic payments or reminders to ensure you never miss a due date.

Credit utilization refers to how much of your available credit you're using. Experts recommend keeping this below 30%. If you have a $10,000 credit limit, try to keep your balance under $3,000.

Building credit takes time. The longer your credit history, the better your score tends to be. This is why it's important to start building credit early and keep old accounts open, even if you don't use them frequently.

Regularly check your credit report for errors. You're entitled to one free report from each bureau annually at AnnualCreditReport.com. Dispute any inaccuracies you find.