Why Is Your Credit Score So Important

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Key takeaways

A good credit score grants you access to better financial products, lower interest rates, and favorable loan terms.
Maintaining and monitoring your credit score involves paying bills on time, keeping credit utilization low, and checking your credit reports for errors
Understanding and improving your credit habits can lead to significant financial benefits and long-term success.

Everyone knows that your credit score determines the credit cards you’re eligible for, the loans you can get, and the interest rates you pay. But did you know that insurers also use your credit score to set premiums for auto and homeowners insurance? Landlords often have credit requirements for renters. Phone companies will use your credit score to decide who gets the best phone plans. And if you have a low credit score you may have to pay a larger deposit to access basic utilities. Credit scores are a financial tool that affects many areas of our lives, like it or not.

A good credit score can help you save thousands. You are more likely to get lower interest rates on a mortgage, be approved for a credit card with a low APR and rewards, and get the best auto insurance deals. Bad credit, on the other hand, signals that you are a risky borrower, making it tough to get a credit card and more expensive to borrow money for any purpose.

But what is a good credit score? And how do you get one? Let’s take a closer look at what you need to do to get your score in the good credit range and have it stay there.

What is a good credit score?

A good credit score depends on the scoring model used. The two main scoring models are FICO and VantageScore. Both calculate credit scores on a scale from 300 to 850, with higher scores being better.

On the FICO scoring model, a good score is anything above 670. On VantageScore it is one that falls above 661.

FICO score ranges

800-850: Exceptional
740-799: Very Good
670-739: Good
580-669: Fair
300-579: Poor

VantageScore Ranges

781-850: Superprime
661-780: Prime
601-660: Near prime
300-600: Subprime

Once your score is over 670 (or 661), it’s considered “good,” and you will be eligible for lower interest rates on your loans, credit cards, and mortgages.

A good score can result in significant savings over time, as lower interest rates mean lower monthly payments and less paid in interest overall.

What is the difference between FICO and VantageScore?

FICO and VantageScore are two major credit scoring models used by lenders to assess a borrower’s creditworthiness. The FICO score was first introduced in 1989 by the Fair Isaac and Company. This model is used by the vast majority of lenders.

VantageScore is much newer. It was founded by the three major credit bureaus – Equifax, Experian, and TransUnion as an alternative to the FICO score.

The primary difference between the two scoring models lies in their scoring ranges and calculation methods.

FICO heavily emphasizes payment history and amounts owed, while VantageScore places more weight on recent credit behavior and trends. Another key difference is the time frame for credit history; FICO requires at least six months of credit history, whereas VantageScore can generate a score in as little as one month.

Additionally, VantageScore is known for using data from all three major credit bureaus (Equifax, Experian, and TransUnion) more uniformly, while FICO scores may vary slightly between bureaus due to differences in data reporting.

Understanding these differences can help consumers manage their credit more effectively and choose the best strategies to improve their scores.

Why your credit score matters

Your credit score isn’t just a random number; it’s a reflection of your financial behavior and trustworthiness. It tells lenders, insurance providers, landlords, and even potential employers how reliable you are.

A higher score indicates that you are trustworthy and will repay what you borrow as agreed. A lower score tells lenders to be more careful with you and that you are a risky borrower.

Easier credit approval: Lenders want assurance that you’ll repay your debts. A good credit score signifies you’re a responsible borrower, leading to quicker and easier approvals for loans and credit cards.

Lower interest rates: People with good credit are often offered lower interest rates on loans and credit cards. This can save you thousands over the life of a loan, especially with significant borrowings like mortgages.

Better loan terms: If you have good credit, you’re more likely to be offered favorable terms, such as a larger loan amount, longer repayment period, or flexible conditions.

Access to perks: Many companies offer perks and rewards to individuals with high credit scores. For instance, a higher credit limit or cash back on credit cards, a low fixed-rate mortgage, or no deposits on utilities.

Best rates on insurance: Many insurance companies use credit-based insurance scoring to determine premiums for auto and homeowner’s insurance. A higher credit score can lead to lower premiums, saving you money in the long run.

Easier time renting: Landlords often require a credit score of 700 or above to qualify for an apartment. A good credit score will make the application process easier and mean you’re less likely to need a co-signer or have to pay a large security deposit.

Overall, your credit score can significantly impact your financial opportunities and quality of life. Maintaining a good credit score can open doors to better financial products, savings on major expenses, and ease in obtaining essential services. Regularly monitoring and improving your credit score is a crucial step toward financial stability and success.

Want a higher credit score?

Learn how to build credit with your credit card!

What affects your credit score?

Several factors affect your credit score, each contributing differently to the overall calculation. Understanding these factors can help you manage and improve your credit score effectively.

FICO scores are calculated by weighing:

Payment history
Credit utilization
Length of credit history
Credit mix
New inquiries

VantageScores weigh the following factors:

Payment history
Depth of credit
Credit utilization
Recent credit
Balances
Available credit

The good news is that improving one score will improve both. As FICO is used by 90% of lenders, we’ll discuss the factors that influence it in more depth.

Payment history: This is the most significant factor, making up about 35% of your FICO score. It reflects whether you pay your bills on time. Late payments, defaults, and bankruptcies negatively impact your score.

Credit utilization: This accounts for 30% of your FICO score. It measures the amount of credit you’re using compared to your total available credit. Keeping your credit utilization ratio below 30% is advisable to maintain a healthy score.

Length of credit history: Making up 15% of your score, this factor considers the age of your oldest account, the age of your newest account, and the average age of all your accounts. A longer credit history typically leads to a higher score.

Credit mix: This represents 10% of your score and looks at the variety of credit accounts you have, such as credit cards, mortgages, and auto loans. A diverse credit mix can positively impact your score.

New credit inquiries: The final 10% of your score is influenced by new credit inquiries. Hard inquiries, which occur when you apply for new credit, can slightly lower your score temporarily. However, soft inquiries, like checking your own credit, do not affect your score.

By understanding these components, you can take targeted actions to improve and maintain your credit score, such as paying bills on time, reducing debt, and managing credit inquiries carefully.

Grow credit with good habits

Boosting your credit score doesn’t happen overnight. However, adopting the following habits can set you on the right path to a healthier credit profile.

Pay bills on time: Nothing counts more than a positive payment history. Set up reminders or automate payments to avoid missing due dates. Consistent, on-time payments show lenders that you are reliable and can manage credit responsibly.

Light regular use of your credit accounts: It’s important to use your credit but not excessively. Aim to use less than 30% of your credit limit to maintain a low credit utilization ratio. This demonstrates that you can use credit without relying heavily on it.

Don’t open unnecessary credit accounts: Every new account results in a hard inquiry on your report, which can lower your score temporarily. Only open new credit accounts when necessary and after considering how they fit into your overall credit strategy.

Maintain older accounts: The age of your credit accounts is crucial. Older accounts contribute positively to your credit history. Keep these accounts open and active, as closing them can shorten your credit history and negatively impact your score.

Pay balances in full: There’s no need to carry a balance to build your score. Paying your balances in full each month avoids interest charges and shows that you can manage credit effectively. If you do carry a balance, aim to pay it down as quickly as possible to reduce debt and improve your credit utilization ratio.

By incorporating these good habits into your financial routine, you can steadily improve your credit score, making it easier to access better credit terms, lower interest rates, and more favorable financial opportunities.

Maintain and defend your score

Regularly check your credit reports from all three major credit bureaus (Equifax, Experian, and TransUnion). Monitoring your reports allows you to spot any discrepancies or unauthorized activities promptly. If you see any errors, dispute them immediately with the credit bureaus to ensure your score reflects accurate information.

Keeping your credit score high is often easier than rebuilding it. It involves ongoing diligence to maintain good habits and monitor your credit health. By staying proactive, you can quickly address potential issues, preventing them from negatively affecting your score. Remember, a high credit score opens doors to better financial opportunities, including lower interest rates and favorable loan terms. Regular monitoring and disciplined financial behavior are key to sustaining a strong credit profile.

Credit building tools and tricks

Building credit takes time but there are tools that can help you in the process. A favorite are secured credit cards. These cards require a security deposit but are much easier to be approved for. Many issuers don’t even require a credit check. Another possibility is to become an authorized user on a friend or family member’s card. You can then benefit from their on-time payments and low utilization.

Credit builder loans are an altogether different product. You take out a loan but do not receive the money right away. Instead, it is held in an account, and you make monthly payments. Your monthly payments are reported to the credit bureaus, helping to improve your score. Once you’ve paid off the loan, you receive your money.

A final tip is to report all your monthly payments through a reporting service. This way, you get credit for the payments you already make on time. Bills these services report include rent, utilities, phone, streaming services, and more.

All these products can help give your score a boost! You still have to make payments on time; that’s the only way your score will grow.

Bottom line

Your credit score may only be a three-digit number, but it profoundly impacts numerous aspects of your financial life. It determines not only how much you’ll pay for your mortgage but also whether you can get the best insurance premiums or even rent an apartment. A good credit score grants access to high-reward credit cards, lower interest rates on loans, and better insurance premiums, potentially saving you thousands of dollars over time.

Understanding how your credit habits influence your score is crucial. Positive behaviors like timely bill payments, maintaining low credit utilization, and keeping older accounts open can help boost and maintain a high score. Conversely, missed payments, high debt levels, and frequent credit inquiries can hurt your score, limiting your financial opportunities.

Once you grasp the importance of your credit score, you can take actionable steps to improve it. Regularly monitoring your credit report, disputing errors, and practicing sound financial habits are all part of a proactive approach to credit management. By focusing on these areas, you set yourself up for financial success, ensuring that your credit score becomes a powerful tool in achieving your long-term financial goals.

1. Paycheck Advance is For eligible customers only. Your actual available Paycheck Advance amount will be displayed to you in the mobile app and may change from time to time. Conditions and eligibility may vary and are subject to change at any time, at the sole discretion of Finco Advance LLC, which offers this optional feature. Finco Advance LLC is a financial technology company, not a bank. Expedited disbursement of your Paycheck Advance is an optional feature that is subject to an Instant Access Fee and may not be available to all users. Expedited disbursements may take up to an hour. For more information, please refer to Paycheck Advance Terms and Conditions. Current is a financial technology company, not an FDIC-insured bank. FDIC insurance up to $250,000 only covers the failure of an FDIC-insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply. Banking services provided by Choice Financial Group, Member FDIC, and Cross River Bank, Member FDIC. The Current Visa® Debit Card issued by Choice Financial Group, and the Current Visa® secured charge card issued by Cross River Bank, are both pursuant to licenses from Visa U.S.A. Inc. and may be used everywhere Visa debit or credit cards are accepted. Current Individual Account required to apply for the Current Visa® secured charge card. Independent approval required. Faster access to funds is based on comparison of traditional banking policies and deposit of paper checks from employers and government agencies versus deposits made electronically. Direct deposit and earlier availability of funds is subject to timing of payer’s submission of deposits.

2. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Member FDIC, and Cross River Bank, Member FDIC. The Current Visa® Debit Card is issued by Choice Financial Group pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. The Current Visa® secured charge card is issued by Cross River Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted. Please see the back of your Card for its issuing bank. Current Individual Account required to apply for the Current Visa® secured charge card. Independent approval required.

3. Individual results may vary. Using your credit card responsibly may allow you to improve your credit score. Credit building depends on various factors, including your payment history, credit utilization, length of credit history, and other financial activities.

4. Faster access to funds is based on comparison of traditional banking policies and deposit of paper checks from employers and government agencies versus deposits made electronically. Direct deposit and earlier availability of funds is subject to timing of payer’s submission of deposits.

5. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group. Funds held in Savings Pods are FDIC-insured on a pass-through basis up to $250,000 at our partner bank Choice Financial Group, member FDIC

6. Paycheck Advance is For eligible customers only. Your actual available Paycheck Advance amount will be displayed to you in the mobile app and may change from time to time. Conditions and eligibility may vary and are subject to change at any time, at the sole discretion of Finco Advance LLC, which offers this optional feature. Finco Advance LLC is a financial technology company, not a bank. Expedited disbursement of your Paycheck Advance is an optional feature that is subject to an Instant Access Fee and may not be available to all users. Expedited disbursements may take up to an hour. For more information, please refer to Paycheck Advance Terms and Conditions.

7. Actual overdraft amount may vary and is subject to change at any time, at Current’s sole discretion. In order to qualify and enroll in the Fee-Free Overdraft feature, you must receive $500 or more in Qualifying Deposits into your Current Account over the preceding 30-day period. For more information, please refer to Fee-free Overdraft Terms and Conditions.

8. You may earn Points in connection with your everyday spending and by completing other actions that Current designates as subject to the Current Points Program. The amount of Points granted for different actions as well as the purchase requirements necessary to earn Points will vary, and is subject to Current’s sole discretion. After qualifying, please allow 3-5 business days for points to post to your Current account. The Current Points program is not available to Teen Account holders. See Current Points Terms and Conditions.

9. Some fees may apply, including out of network ATM fees of $2.50 per transaction, late payment fees of 3% of any total due balance outstanding and past due for two or more billing cycles, foreign transaction fees of 3% of the full transaction amount (minimum $0.50), card replacement fees per card of $5 for regular delivery and $30 for expedited delivery, cash deposit fees of $3.50 per deposit, and third party processing fees.

10. Boost Bonuses are credited to your Savings Pods within 48 hours of enabling the Boost feature and on a daily basis thereafter, provided that the Savings Pod has accrued a Boost Bonus of at least $0.01. The Boost rate on Savings Pods is variable and may change at any time. The disclosed rate is effective as of August 1, 2023. Must have $0.01 in Savings Pods to earn a Boost rate of either 0.25% or 4.00% annually on the portion of balances up to $2000 per Savings Pod, up to $6000 total. The remaining balance earns 0.00%. A qualifying direct deposit of $200 or more is required for 4.00%. No minimum balance required. For more information, please refer to Current Boost Terms and Conditions.

11. Cryptocurrency services are powered by Zero Hash LLC and Zero Hash Liquidity Services LLC, and may not be available in all states. Terms and conditions apply. When you buy or sell cryptocurrency, a difference between the current market price and the price you buy or sell that asset for is called a spread. However, unlike most other exchanges Current does not charge an additional trading fee. Cryptocurrency transactions are a form of investment, and all investments are subject to investment risks, including possible loss of the principal amount invested. Cryptocurrency is not insured by the FDIC or any other government-backed or third-party insurance. Your purchase of cryptocurrency is not a deposit or other obligation of, or guaranteed by, Choice Financial Group or Cross River Bank. The cryptocurrency assets in your Zero Hash account are not held at Current, Choice Financial Group, or Cross River Bank. Current, Choice Financial Group, and Cross River Bank are not responsible for the cryptocurrency assets held in any Zero Hash account. Neither Current, Choice, nor Cross River Bank is involved in the purchase, sale, exchange of fiat funds for cryptocurrency, or custody of the cryptocurrencies. Terms and Conditions apply (platform and user agreements). Crypto on Current is not currently available in HI. Licensed to engage in Virtual Currency Business Activity by the New York State Department of Financial Services. This does not constitute investment advice.

12. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group. Your money is FDIC-insured on a pass-through basis up to $250,000 at each of our partner banks, Choice Financial Group and Cross River Bank, members FDIC.

13. Average value based on Fine Hotels + Resorts bookings in 2023 for stays of two nights. Benefits include daily breakfast for two, room upgrade upon arrival when available, $100 amenity, guaranteed 4PM late checkout, and noon check-in when available. Certain room categories not eligible for upgrade. $100 amenity varies by property. Actual value will vary based on property, room rate, upgrade availability, and use of benefits.

14. Up to $500 per Covered Trip that is delayed for more than 6 hours; and 2 claims per Eligible Card per 12 consecutive month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

15. The maximum benefit amount for Trip Cancellation and Interruption Insurance is $10,000 per Covered Trip and $20,000 per Eligible Card per 12 consecutive month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

16. Baggage Insurance Plan coverage can be in effect for Covered Persons for eligible lost, damaged, or stolen Baggage during their travel on a Common Carrier Vehicle (e.g. plane, train, ship, or bus) when the Entire Fare for a ticket for the trip (one- way or round-trip) is charged to an Eligible Card. Coverage can be provided for up to $2,000 for checked Baggage and up to a combined maximum of $3,000 for checked and carry-on baggage, in excess of coverage provided by the Common Carrier. The coverage is also subject to a $3,000 aggregate limit per Covered Trip. For New York State residents, there is a $2,000 per bag/suitcase limit for each Covered Person with a $10,000 aggregate maximum for all Covered Persons per Covered Trip. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

17. Car Rental Loss and Damage Insurance can provide coverage up to $75,000 for theft of or damage to most rental vehicles when you use your eligible Card to reserve and pay for the entire eligible vehicle rental and decline the collision damage waiver or similar option offered by the Commercial Car Rental Company. This product provides secondary coverage and does not include liability coverage. Not all vehicle types or rentals are covered. Geographic restrictions apply. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company. Car Rental Loss or Damage Coverage is offered through American Express Travel Related Services Company, Inc.

18. Coverage for a Stolen or damaged Eligible Cellular Wireless Telephone is subject to the terms, conditions, exclusions, and limits of liability of this benefit. The maximum liability is $800, per claim, per Eligible Card Account. Each claim is subject to a $50 deductible. Coverage is limited to two (2) claims per Eligible Card Account per 12 month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

19. When an American Express® Card Member charges a Covered Purchase to an Eligible Card, Extended Warranty§ can provide up to one extra year added to the Original Manufacturer’s Warranty. Applies to warranties of five (5) years or less. Coverage is up to the actual amount charged to your Card for the item up to a maximum of $10,000; not to exceed $50,000 per Card Member account per calendar year. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

20. Purchase Protection is an embedded benefit of your Card Membership and requires no enrollment. It can help protect Covered Purchases made on your Eligible Card when they’re accidentally damaged, stolen, or lost, for up to 90 days from the Covered Purchase date. The coverage is limited to up to $10,000 per occurrence, up to $50,000 per Card Member account per calendar year. Coverage Limits Apply. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

21. Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.

22. The secured Chime Credit Builder Visa® Card is issued by Stride Bank, N.A., Member FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted.

23. Banking services and debit card provided by The Bancorp Bank N.A. or Stride Bank, N.A., Members FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted.

24. The Annual Percentage Yield (“APY”) for the Chime Savings Account is variable and may change at any time. The disclosed APY is effective as of September 20, 2023. No minimum balance required. Must have $0.01 in savings to earn interest.

25. There’s no fee for the Chime Savings Account. Cash withdrawal and Third-party fees may apply to Chime Checking Accounts. You must have a Chime Checking Account to open a Chime Savings Account.

26. To apply for Credit Builder, you must have received a single qualifying direct deposit of $200 or more to your Chime Checking Account. The qualifying direct deposit must be from your employer, payroll provider, gig economy payer, or benefits payer by Automated Clearing House (ACH) deposit OR Original Credit Transaction (OCT). Bank ACH transfers, Pay Anyone transfers, verification or trial deposits from financial institutions, peer to peer transfers from services such as PayPal, Cash App, or Venmo, mobile check deposits, cash loads or deposits, one-time direct deposits, such as tax refunds and other similar transactions, and any deposit to which Chime deems to not be a qualifying direct deposit are not qualifying direct deposits.

27. Money added to Credit Builder will be held in a secured account as collateral for your Credit Builder Visa card, which means you can spend up to this amount on your card. This is money you can use to pay off your charges at the end of every month.

28. Based on a representative study conducted by Experian®, members who made their first purchase with Credit Builder between June 2020 and October 2020 observed an average FICO® Score 8 increase of 30 points after approximately 8 months. On-time payment history can have a positive impact on your credit score. Late payment may negatively impact your credit score.

29. On-time payment history may have a positive impact on your credit score. Late payment may negatively impact your credit score. Chime will report your activities to Transunion®, Experian®, and Equifax®. Impact on your credit may vary, as Credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.

30. Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.

31. SpotMe® on Debit is an optional, no fee overdraft service attached to your Chime Checking Account. To qualify for the SpotMe on Debit service, you must receive $200 or more in qualifying direct deposits to your Chime Checking Account each month and have activated your Visa debit card. Qualifying members will be allowed to overdraw their Chime Checking Account for up to $20 on debit card purchases and cash withdrawals initially but may later be eligible for a higher limit of up to $200 or more based on Chime Account history, direct deposit frequency and amount, spending activity and other risk-based factors. The SpotMe on Debit limit will be displayed within the Chime mobile app and is subject to change at any time, at Chime’s sole discretion. Although Chime does not charge any overdraft fees for SpotMe on Debit, there may be out-of-network or third-party fees associated with ATM transactions. SpotMe on Debit will not cover any non-debit card transactions, including ACH transfers, Pay Anyone transfers, or Chime Checkbook transactions. SpotMe on Debit Terms and Conditions.

32. Tipping or not tipping has no impact on your eligibility for SpotMe®.

33. Out-of-network ATM withdrawal fees may apply except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM.

34. Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.

35. Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.

36. Mobile Check Deposit eligibility is determined by Chime in its sole discretion and may be granted based on various factors including, but not limited to, a member’s direct deposit enrollment status.

37. Funds are automatically debited from your Checking Account and typically deposited into the recipient’s Checking Account within seconds. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed.

38. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed. Non-Chime members must use a valid debit card to claim funds.

* EarnIn is not available for Connecticut residents

Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.

Why Is Your Credit Score So Important

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