How Credit Scores Work (And How Cards Affect Them)

Your credit score is a three-digit number that determines whether you get approved for loans, what interest rate you pay, and sometimes whether you get an apartment or job.

Understanding how it works gives you the power to improve it. Here’s everything you need to know.

Types of Credit Scores

FICO Score (Most Important)

Used by 90% of lenders. Developed by Fair Isaac Corporation.

Score ranges:

Range	Rating	What It Means
800-850	Exceptional	Best rates, easy approvals
740-799	Very Good	Excellent rates
670-739	Good	Approved for most products
580-669	Fair	Higher rates, some limitations
300-579	Poor	Difficult to get approved

VantageScore

Alternative model used by some lenders. Similar range (300-850) but calculated differently. Often shown on free services like Credit Karma.

Note: Your FICO and VantageScore may differ by 20-50 points. What lenders actually see is usually FICO.

2. Credit Utilization (30%)

How much of your available credit you’re using.

Formula: Total Balances ÷ Total Credit Limits = Utilization %

Example:

• Total balances: $2,000
• Total limits: $10,000
• Utilization: 20%

Impact:

Utilization	Score Impact
0-10%	Best
11-30%	Good
31-50%	Fair
51-75%	Poor
76-100%	Very Poor

How to optimize:

• Pay balances before statement closes
• Request credit limit increases
• Don’t max out cards
• Keep individual cards under 30% too

Important: Utilization has no memory. Fix it this month, and your score improves next month.

4. Credit Mix (10%)

Having different types of credit accounts.

Types that help:

• Credit cards (revolving credit)
• Auto loans (installment)
• Mortgages (installment)
• Student loans (installment)
• Personal loans (installment)

Impact: Having only credit cards isn’t bad, but a mix of credit types shows you can handle different kinds of debt.

How to optimize:

• Don’t take loans just for credit mix
• Over time, natural borrowing (car, house) adds variety
• Credit cards alone can still achieve excellent scores

How Credit Cards Affect Your Score

Positive Effects

Action	Impact
Paying on time	Builds payment history (+)
Keeping balance low	Lowers utilization (+)
Having account for years	Lengthens history (+)
Adding credit card to mix	Improves credit mix (+)

Negative Effects

Action	Impact
Missing payment	Damages payment history (-)
Maxing out card	Raises utilization (-)
Opening multiple cards quickly	Increases new credit (-)
Closing old cards	Shortens history (-)

Credit Score Myths

Myth: Checking Your Score Hurts It

Truth: Checking your own score is a “soft inquiry”—no impact. Only hard inquiries (when you apply for credit) affect your score.

Myth: Carrying a Balance Helps Your Score

Truth: Carrying a balance just costs you interest. Pay in full every month. Utilization is measured at statement time, not whether you pay interest.

Myth: Closing Cards Improves Your Score

Truth: Closing cards usually hurts. It reduces available credit (raises utilization) and eventually shortens credit history.

Myth: Income Affects Your Credit Score

Truth: Income isn’t in your credit score. A minimum wage worker and a millionaire can have the same score. Income affects credit decisions separately.

Myth: You Need Debt to Build Credit

Truth: You need credit activity, not debt. Charging $50/month and paying in full builds credit the same as carrying $5,000 in balance—but without interest.

Credit Score by Life Stage

Student/New to Credit (300-650)

Focus on:

• Getting any card (secured if needed)
• Making 100% on-time payments
• Keeping utilization low
• Being patient

Timeline: 6-12 months to establish score; 2-3 years to reach “Good”

Building Credit (650-720)

Focus on:

• Continuing perfect payments
• Possibly adding second card
• Requesting credit limit increases
• Letting accounts age

Timeline: 1-2 years to reach “Very Good”

Established Credit (720-800+)

Focus on:

• Maintaining habits
• Keeping utilization very low (<10%)
• Not closing old accounts
• Limiting new applications

Timeline: Maintain indefinitely

The Bottom Line

Your credit score boils down to five factors:

1. Pay on time (35%)
2. Keep balances low (30%)
3. Let accounts age (15%)
4. Maintain credit mix (10%)
5. Limit new applications (10%)

Credit cards are the easiest way to build and maintain a good score. Use them responsibly—pay in full, keep utilization low, don’t close old accounts—and your score will take care of itself.

No tricks, no secrets. Just consistent good behavior over time.