A credit score is a number that summarises how reliably you have handled borrowing in the past. Lenders use it, along with other information, to decide whether to approve credit and what terms to offer. Exact models and ranges differ by country and provider, but the underlying ideas are similar.
What goes into a score
Scoring models vary, yet most consider a similar set of factors:
- Payment history: whether you pay on time. Late or missed payments usually carry the most weight.
- Amount owed: how much of your available credit you are using, often called utilisation.
- Length of credit history: how long your accounts have been open.
- New credit: recent applications and newly opened accounts.
- Credit mix: the variety of credit types you manage, such as cards and instalment loans.
Utilisation in plain numbers
If your cards have a combined limit of 10,000 and you carry a balance of 3,000, your utilisation is 30 percent. Keeping balances well below your limits is generally viewed more favourably than running them close to the maximum.
Habits that tend to help
- Pay at least the minimum on time, every time. Automatic payments help.
- Pay balances in full where possible.
- Avoid applying for lots of credit in a short period.
- Keep older accounts open if they have no fees.
- Check your credit report regularly for errors and report mistakes promptly.
Common myths
Checking your own report does not normally harm your score, although formal applications from lenders can leave a record. Carrying a balance is not required to build a good score. Paying in full works just as well and costs less in interest.
Building credit from scratch
If you have no history, options such as a starter card with a low limit or a small instalment loan, used responsibly, can help create a record. Be cautious, though: only borrow what you can repay.
A credit score is not a measure of your worth, and it can improve with steady habits. Because systems differ across countries, check the rules and reporting agencies that apply where you live.
