Credit Scores Demystified

By Adebisi Adeloye 

If you’ve ever applied for a credit card, tried to rent an apartment, or even dreamed about buying a house, you have most likely heard about credit scores. A credit score is a three-digit number usually between 300 and 850 that acts like a financial report card for lenders. It tells them how risky it is to lend you money or provide you with credit based on your past financial record. 

A high score indicates that you are responsible with money, which in turn unlocks better loan offers, lower interest rates, and a higher credit limit. To get a house, your credit score is very important, as a higher score means that you will have a lower interest rate on your mortgage. Additionally, credit scores can affect your ability to get approved for other loans or rental agreements. 

How Your Credit Score Is Calculated 

• Payment History (35%): It shows if you pay your bill on time; a late payment hurts your score, while a good payment history helps it. Which is why it’s the most important part of how it's calculated. 

• Amount Owed (30%): This looks at your debt and your credit utilization rate, which is the percentage of your available credit you're using. If you have a credit card with a $1000 limit and a $500 balance, your utilization rate is 50%. Experts recommend keeping it below 30% is good, but under 10% is usually the way to go. 

• Length of Credit History (15%): This considers the age of your oldest account, your newest account, and the average age of all your accounts. The longer you've had accounts in good standing, the better your score. 

• New Credit (10%): This looks at how many new accounts you've opened and how many hard inquires you have. Applying for too many credit cards or loans in a short period isn’t ideal or recommended. 

• Credit Mix (10%): This looks at whether you have different types of credit. Having a variety of credit, such as a credit card and loans, shows that you’re able to handle different types of debts. 

Why Your Credit Score Matters

Your credit score matters for more than just getting loans; it can affect many parts of your life. When you apply for a mortgage, lenders use your credit score to decide whether to approve you and what interest rate to offer. A good credit score can save you thousands of dollars, as you would qualify for lower interest rates. Beyond loans, credit scores can also be used by landlords to screen rental applications. Cell phone companies may check your score when you obtain a mobile plan, and utility companies might require a larger security deposit if your score is low. Some employers even check your credit as part of the hiring process. 

Credit Score Do’s and Don’ts 

What to do to improve and maintain your score: 

• Pay all your bills on time; set up automatic payments or reminders so you don’t miss a date. 

• Keep credit card balance low, usually under 30% of your available credit. 

• Regularly monitor your credit. 

• Keep old accounts open; this helps your credit history length. 

• Contact your lender if you’re struggling; this helps so you're able to work out a plan before that missed payment ever hits your account, as late payments can stay on your account for seven years. 

What not to do to avoid hurting your score: 

• Don't apply for many new accounts at once, as they will trigger a hard inquiry, which can lower your score. 

• Don’t max out your credit cards. 

• Don’t ignore your credit reports: Errors can hurt you if you don't fix them. 

• Don't close your oldest accounts: This can shorten your credit history. 

• Don't trust companies that promise to fix your credit for a fee, as many of these are scams.

Works Cited 

• caylieprauner. “Demystifying Credit Scores.” Midwest Bank, 18 Oct. 2023, https://midwest.bank/news/2023/10/demystifying-credit-scores/. Accessed 29 Aug. 2026. 

• Luthi, Ben. “Understanding Credit Scores - Experian.” Www.Experian.Com, 21 Apr. 2016, https://www.experian.com/logs/ask-experian/credit-education/score-basics/understanding-credit -scores/. Accessed 29 Aug. 2026. 

• “Credit Scores Demystified: What They Mean and How to Improve Yours.” Nuvision, 2024, https://nuvisionfederal.com/blog/memberresources/2024/11/12/credit-scores-demystified-what-t hey-mean-and-how-to-improve-yours. Accessed 29 Aug. 2026. 

• Ashton, Vanessa. “Understanding Credit Scores: Why They Matter and How to Improve Them.” Milford Federal -, 5 July 2023, https://www.milfordfederal.com/understanding-credit-scores-why-they-matter-and-how-to-impro ve-them/. Accessed 29 Aug. 2026.