So, you know that a high credit score is good and a low score is bad… But if you truly want to achieve your financial goals—get out of debt, buy a car, apply for a mortgage—then you’ll need to dive deeper into understanding your credit score. Your score is the deciding factor on whether you will be approved or denied for loans or credit, and whether you’re offered a high or low interest rate. Basically, over time, having a good score can save you money and improve your quality of life.

Know Your Score (and check it often!)

Your credit score is a three-digit measure of your creditworthiness. This article refers specifically to your FICO credit score, which 90% of lenders consider. Your FICO score ranges between 300 and 850 and is generated by a mathematical algorithm created by the Fair Isaac Corporation aka FICO. FICO gives its formula to three major credit bureaus (Equifax, TransUnion, and Experian) and each generates a different number based on the unique mix of information they use. Depending on the bureau, your score can vary by up to 50 points.

Federal mandate requires that each bureau provide you with one free credit report each year, so theoretically you could request a new report every four months. Checking your report regularly will motivate you to improve your score, and can also help you catch fishy activity caused by errors or fraud.

Factors that Influence Your Score

• Payment history accounts for 35% of your score. Black marks from late or missed payments stay on your account for seven years. Setting up automatic payments through your bank can help you avoid missing a payment.
• Utilization accounts for 30% of your score. Your credit utilization rate is represented by a percentage, determined by the ratio of credit you’ve spent compared to how much is available to you.For example, say you have two open credit cards. One has a $1000 limit and a current balance of $200, while the other has a $2500 limit carrying a balance of $1500. Your utilization on the first card is 20%, while the second is 60%. The average of these percentages– 40%– is your overall credit utilization.

If you keep your utilization at 25% or less, there will be no negative impacts to your report. Try to keep the number down, especially if you’re planning to apply for a new loan, mortgage or credit.

• Length of credit history accounts for 15% of your score. Creditors want to see that you’ve been a loyal customer.
• New credit accounts for 10% of your score. When you apply for new credit, a “hard inquiry” appears on your report. Accumulating a lot of hard inquiries, especially over a short period of time, makes you look bad to potential creditors. Furthermore, each inquiry causes your score to drop a few points. “Soft” inquiries don’t count against you, such as when you check your own credit report or when you receive pre-approved credit card offers.
• Credit mix accounts for the last 10% of your score. This refers to the different types of credit you have open, such as credit cards, retail accounts, mortgages, student and car loans. A credit card from a national bank holds more weight than a department store card, for example. Try to have a good balance of account types, rather than too many of the same, such as a handful of credit cards with no other accounts in the mix.

No Credit Card Necessary

Credit cards aren’t for everyone. Whatever your reason for not wanting a credit card, don’t worry because it’s not the only way to build credit. Another option is to take out a small credit builder loan from the bank.

It Helps to have Support

When in doubt, enlist the support of a financial expert. While you may be intimidated by the big bank institution, remember that these companies are made up of individuals whose job it is to help. You can absolutely schedule a free consultation with a personal banker at your bank. This will give you the opportunity to look at your score together, strategize, and ask any questions. If you’re worried about a banker trying to sell you on their own products and services, then solicit a financial expert from a nonprofit credit account agency. Sitting down with someone for 20-30 minutes can dispel misunderstandings and help you get on the right track.