Who knew a three digit number could have such a great impact on your life? If you’ve ever taken out a loan or opened a credit card, you have a credit score. The difference between a good credit score and a bad credit score can mean the difference between getting the loan you need to buy a house or car—or not. Credit scores are flexible and can go up or down based on your history. This can be a good thing, especially if you’ve struggled with debt in the past. There are always steps you can take to build a healthy credit score!

What makes up a credit score?

The Fair Isaac Corporation (FICO), the company that’s behind one of the most commonly used credit score systems, uses a proprietary formula to calculate your score. The company has explained what plays a role in determining people’s scores. For example, your payment history plays the biggest part when it comes to figuring out your score. It makes up 35 percent. How much you owe makes up 30 percent of the score, although owing money doesn’t necessarily mean your score will be lower. How long you’ve had credit is 15 percent of your score, so if you’ve just opened your first credit card, your score might be lower. The type of credit you have and new credit each make up 10 percent of your credit score. Typically, having a variety of credit and loans and paying those loans on time will lead to a better score.

What is a good credit score?

FICO scores can be between 300 and 850. The higher your score, the better. According to FreddieMac, a good credit score is above 700. But, if you want the best rates on loans, you want a score that tops 770. If your score is in the 600s or lower, you might have some trouble when it comes to getting credit. You might not get the best rate, or the lender might ask that you make a bigger down payment or require some sort of collateral. If your score is very low, you might be turned down for a credit card or other loan.

What if you have a low credit score?

If your score’s not where you want it to be, remember that it’s not permanent, and it’s not a reflection of you, it’s just a reflection of your financial history. Think of your current credit score as you would a high school yearbook picture: it changes with time. You might have had bad hair in your freshman picture but a betters style in your senior picture. Like you in high school, your credit score will change as time goes on and you learn to better manage debt and finances.

You can increase your credit score by paying any debts you owe on time and by cutting down on your total debt. Only open accounts when you need them so your score doesn’t drop and so you don’t find yourself with a lot of credit cards or loans you can’t afford to pay back.

If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. Contact us today for a free financial assessment with one of our certified credit counselors.