Credit Basics

A credit score is a three-digit number that shows lenders how likely you are to repay borrowed money. It typically ranges from 300 to 850, and the higher the score, the better your chances of getting approved for credit with favorable terms.

Most people use the FICO scoring model, which calculates your score based on these factors:

• Payment history (35%): Have you paid your bills on time?
• Credit utilization (30%): Are you using too much of your available credit?
• Length of credit history (15%): How long have you had your accounts?
• Credit mix (10%): Do you have a variety of credit types, like credit cards and loans?
• New credit inquiries (10%): Have you applied for a lot of new accounts recently?

Think of it like a financial GPA: it measures your behavior over time, not just one test.

In the 7 Steps to a 720 Credit Score free credit-education program, we help people break this down even further. Most of our students have no idea how the scoring formula works when they begin, but once they understand it, they’re shocked at how quickly they can rebuild, even after a bankruptcy.

A good credit score usually starts at 700 on the FICO scale, but many lenders reserve their best rates for scores above 720.

Here’s a general breakdown:

Keep in mind, different lenders have different standards. A credit card company may approve you with a 680, while a mortgage lender might want to see 720 or higher to give you the best interest rate.

One thing we emphasize in 7 Steps to a 720 Credit Score is that “good” isn’t just a number: it’s about opportunity. For many people, moving from the 600s into the 700s opens doors they thought were closed: car loans, mortgages, and even vacations paid for by credit card miles and rewards.

The single biggest factor affecting your credit score is payment history. If you pay your bills late, or miss them altogether, your score will take a hit.

Here’s how the major FICO categories break down:

• 35%: Payment history
• 30%: Credit utilization
• 15%: Length of credit history
• 10%: Credit mix
• 10%: New credit inquiries

In plain terms: Pay on time, use a small percentage of your available credit, and avoid applying for too much credit at once.

Many people assume paying off debt will automatically boost their score, but it’s more nuanced than that. If you pay off and close a credit card, your utilization might spike and your score could dip temporarily. In our free credit-education program, 7 Steps to a 720 Credit Score, we teach people how to work with the formula, not against it. For example, we recommend keeping your old cards open and using them every month, then paying them off right away. We’ve seen people jump 30–50 points in just a few months by shifting a few simple habits.

There’s no separate credit scoring scale for students. Whether you’re 18 or 80, a good credit score is the same: generally 700 or above, with anything over 720 being a great credit score.

That said, many college students are just starting to build credit, so it’s normal for them to have lower scores, not because they’ve done anything wrong, but because their credit history is young. According to Experian, the average Gen Z credit score was 679 in 2023.

In 7 Steps to a 720 Credit Score, our free credit-education program, we help young people get a head start by showing them how to use credit responsibly from day one. We teach strategies like keeping utilization low, paying on time, and only opening accounts that serve a purpose. We’ve had students as young as 18 boost their score over 720 just by following the plan.

If you’re a student, focus on learning the rules early. A strong credit score can make life a lot easier when you graduate, whether you’re getting an apartment, financing a car, or landing a job that pulls your credit report.

Credit utilization refers to how much of your available credit you’re using, and it’s one of the most important factors in your credit score, making up 30% of your FICO score.

Here’s how it works: If you have a credit card with a $1,000 limit and you’re carrying a $500 balance, your utilization is 50%. The higher that percentage, the more it can drag your score down. A high balance-to-limit ratio tells the credit-scoring bureaus that you may be having a hard time keeping afloat, and that you are turning to credit cards to pay for day-to-day expenses. A low utilization rate, on the other hand, tells lenders that you have plenty of income to cover your expenses.

Most experts recommend keeping your utilization below 30%, but if you want to see real improvement, aim for under 10%.

Here’s the key: Utilization is calculated per account and across all accounts. That means even if your total utilization is low, having one maxed-out card can still hurt your score.