What Is A Credit Score? & How To Improve Credit Score?

Pritam Nagrale

Updated on:

what is a credit score

There is a high chance that your loan will be rejected if your credit score is not more than 700!

What is this credit score, how did you get this, what factors affect your credit score & how to improve your credit score?

In this article, we talk about everything about the Credit Score.

We conclude the article by giving some tips and ways to check your credit score for free.

So let us begin.

what is a credit score

What is a Credit Score?

In simpler words, a credit score is just like grades. It is a three-digit number that tells how good or bad your credit score is.

Your credit score could be between 300 and 850 depending on how good you are when it comes to paying the debt.

Different lenders or banks calculate credit scores depending on various factors. We shall debate this in great detail in the coming paragraphs.

If you have just acquired your new credit then make sure that you pay all your debt on time.

Keep your spending low so you do not keep borrowing money from the bank and increase your debt.

Why It is Important to Have a Good Credit Score?

credit score

I do not think you need to know this. But if you are new then you must know the importance of a good credit score.

As I said earlier good credit score is anything above 700. A good credit score will decide your financial success.

If you want loans for a home, car or starting a new business then your credit score must be impressive.

Otherwise, lenders and banks are not going to lend you any money.

So if you are serious about loans and borrowing money then keep in mind that your credit score must be above 700 points.

You can’t be frivolous here.

How Credit Score is Calculated?

how to calculate credit score

Calculating credit scores involves many things and different banks do it in different ways.

However, the fundamentals are similar.

Your lender or bank would take the following variables into consideration before he calculates your credit score.

Payment History:

Payment history is the number one variable that affects your credit score. It constitutes 35%.

Payment history will cover everything like you make payments on time or not, how often you miss your debt servicing, days past the due days for paying bills etc.

So if you repay your debt on time,  it will add to your credit score.

Amount You Owed:

How much money you owe is the 2nd biggest factor in deciding your credit score.

How much is your total credit & how many loans you have taken as compared to your score? If you have used less credit & making regular payments then it will be good.

Length of Credit History:

Your credit history is the third factor and it accounts for 15%. How long have you been using your credit & how regular payment history do you have?

Types of Credit:

Different types of accounts also determine your credit score. It makes up for the 10%. A mixed bag is really great for a high credit score.

So your credit accounts could be for home loans, instalment loans, auto loans, credit cards, retail etc.

New Credit:

It tells the recent credit activity. It accounts for 10%. If you have too many accounts opened then you will have a low credit score.

But if you pay loans regularly for loans you took way back then your credit score is expected to rise.

How To Improve Credit Score?

how to increase credit score

Scaling or rating credit score means what points do you give so a credit score is called good, average or poor.

As I said the credit score is just like your grades A, B, C etc and different lenders have different parameters to measure credit score.

Usually, a bank will rate a credit score from 301 points to 850.

  • 750+ Credit Score Means Excellent
  • 700 – 749 Credit Score Means Good
  • 650 – 699 Credit Score Means Fair or Average
  • 600 – 649 Credit Score Means Poor
  • Below 600 Credit Score Means Bad

Usually, people have average credit scores but most of them are in the poor or bad category.

Very few have a good and excellent credit score.

Also Read: How to Improve Credit Score as a Student

How to Check Your Credit Score For Free

You can check your credit score for free online.

There are various credit reporting agencies that help you to know your credit score for free. In fact, in the US the law mandates that the consumer has a right to a free credit report annually.

Although there are many credit rating agencies but here we are mentioning five of them.

  1. Credit Karma – https://www.creditkarma.com
  2. Wells Fargo – https://www.wellsfargo.com/
  3. What’s My Score – https://www.whatsmyscore.org/
  4. Cibil Score – https://www.cibil.com/
  5. Annual Credit Report – https://www.annualcreditreport.com/

You must remember some are free and some do charge a fee but it is like $2 or $4.

Tips for Increasing Your Credit Score

I will end this article by giving you some tips on how to increase your credit score.

If you are bad then you can become average and if you are average then you can become good.

Here are some handy tips.

  1. Always pay your loans, bills, and debt on time. This is no rocket science.
  2. Do not go over your credit limit. If you are using a credit card, then read these important tips.
  3. Always have a mix of accounts like home loans, car loans, retail etc.
  4. Do not go for a new loan unless you have paid the previous one.
  5. You can become an authorized user.

So these were a few tips to increase your credit score easily.

Are you applying for a new loan? Have you ever faced a loan rejection because of a low credit score? Share your experiences through comments!


What is a good credit score?

A good credit score is typically considered to be 670 or higher on the FICO scale of 300-850. This score indicates a good credit history and a higher likelihood of loan and credit approvals at favourable interest rates. Different lenders may have different criteria for what they consider a “good” score, but maintaining responsible credit use and payment history over time is key to keeping a good credit score.

What is the highest credit score?

The highest credit score possible is 850, which is considered exceptional and rare. It is achieved through a long history of responsible credit behaviour, such as making on-time payments, keeping low balances, and having a diverse mix of credit products. A high credit score of 850 or above can lead to better financial opportunities such as lower interest rates and favourable loan terms.

How to check my credit score for free?

You can check your credit score for free using the following websites: AnnualCreditReport.com, Credit Karma, Discover Credit Scorecard, Credit Sesame, or your bank or credit union. Some of these websites provide personalized credit analysis, recommendations and credit reports, while others offer only the credit score. It is important to regularly monitor your credit score to ensure its accuracy and catch any errors or fraud.

What are the credit score ranges?

Credit scores range from 300 to 850 and are a numerical representation of an individual's creditworthiness based on factors such as credit history, payment history, outstanding debt, length of credit history, types of credit used, and recent credit inquiries. A score of 800-850 is considered an excellent and low credit risk, a score of 740-799 is considered good, a score of 670-739 is considered fair, a score of 580-669 is considered poor, and a score of 300-579 is considered bad.

How to improve your credit score fast?

Improving your credit score quickly can be achieved by paying down debt, making on-time payments, monitoring your credit reports, limiting new credit applications, and using a secured credit card. By paying bills on time and keeping credit utilization low, your credit score will improve in as little as six months with persistence and discipline. To ensure accuracy, regularly check your credit reports and dispute any errors.

How long does it take to improve your credit score?

Improving your credit score can take several months to a few years, depending on the factors affecting your score and the actions you take to improve it. On average, you can expect to see some improvement within 3-6 months of making positive changes, but a significant improvement may take up to 12-24 months. Factors affecting the timeline include the current state of credit, changes made, and frequency of credit reporting.

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