Usually, one of the first things you learn about when it comes to personal finance is credit.

By the time you start college, you’re getting bombarded with credit card applications and marketing to start “building your credit” and getting your first credit card.

And for good reason – building your credit is important. But there are some guidelines to follow. It can easily turn sour and follow you like a dark rain cloud over your head for many, many years if you don’t use your credit responsibly.

So credit is a pretty big deal. And the reason is your credit score.

Your credit score is a calculated 3-digit number that directly reflects what kind of borrower you are, and whether or not you’re good at repaying your debt.

This intangible representation of your spending history follows you wherever you go, from buying a car, a home, or even renting an apartment.

Everything you do stays on your credit file for at least 7 years, and bankruptcy can stay on your file for at least 10 years.

That’s why it’s so important to stay on top of your credit score.

What makes up your credit score

So let’s break down this magic number a bit more, because there’s a lot that goes into it.

According to myFICO, your credit score is made up of 5 different things:

  • payment history,
  • debt ratio or amount owed,
  • the age of your credit,
  • types of credit, and
  • new credit.

Payment history

The payment history portion takes up 35% of the credit score pie, making it the most heavily weighted factor.

This comprises your account payment information, any late payments or completely missed payments, and delinquencies.

Amount owed

The amount owed, or your debt ratio, is the second most important factor, weighing in at 30% of the total score.

This takes into consideration exactly how much money you owe on all your accounts in comparison to your available credit.

For example, someone with a $10,000 credit card with a $1,000 balance owing will have a better overall debt ratio that someone who has a $500 credit card that’s constantly maxed out.

Age of your credit

The age of your credit is weighed at 15%.

This is made up of the total length of time your accounts have been active, and how often you use your credit.

Types of credit on file

This accounts for 10% of your credit score and considers the mix of accounts you have.

New credit

And the final 10% of the pie goes to new credit, which tracks how often you apply for new credit cards and credit inquiries.

What is considered a good credit score

Now that you know what your credit score is made up of, what exactly is a good credit score?

Credit score range

Let’s break down the numbers of what makes a good credit score.

There are a few different credit score ranges:

  • Very poor – 300 to 579
  • Fair – 580 to 669
  • Good – 670 to 739
  • Very good – 740 to 799
  • Exceptional – 800 to 850

According to these numbers, it’s easy to assume that a credit score above 670 is considered good.

What credit score do I need to get a credit card?

When it comes to credit cards, the higher the credit score, the better.

If you have Exceptional or Very Good credit, you can expect to be accepted for a credit card by most credit card issuers. The best credit cards on the market usually have a higher credit score requirement.

Good credit might close some of those doors, but you’re still able to apply for some good credit cards, including some student credit cards.

For Fair or Very Poor credit, you’re unfortunately limited to secured credit cards.

Make sure you know your credit score

Knowing your credit score is a big step in taking control of your personal finance for many reasons.

First, it takes out the guesswork. Looking to buy a new car? Knowing your credit score is a good way to anticipate the kind of APR rates you can expect on your loan. Have your heart set on a new apartment? Knowing that you have a good credit score can add some reassurance that you won’t get declined for it right off the bat.

Secondly, by checking your credit score often, you can start to identify peaks and declines. If ever it starts to decline, you can easily make the appropriate changes to fix it.

Check your credit score for free

In the United States, you’re entitled to a free credit check from each credit reporting agency (TransUnion, Experian, and Equifax) every year. These free checks do not include your actual score, just the information in your file.

Some credit card issuers will also allow you free unlimited access to your credit score (for some of their credit cards) like:

  • Bank of America,
  • Capital One,
  • Discover, and
  • Wells Fargo.

Have bad credit? Now is the time to repair your credit score

Running from bad credit is a vicious cycle and there’s only one true way to turn it around – putting in work.

If you have bad credit, there are easy strides that you can start taking today to help improve your credit score.

Pay your bills on time

As we mentioned above, paying your bills on time is the biggest piece of the credit score pie.

Making your payments on time could be as easy as setting up a monthly alarm one week, a couple of days, or even the day of your payment due date.

Most mobile banking apps will even allow you to set up automatic payments where the minimum amount due or any other specified amount is taken out of your chequing and automatically paid to your credit card bill.

Reduce the amount you owe

This can be a tough one, but it’s an important one.

Hammering down on your spending habits and tightening the purse strings is something no one likes to do – but when you’re getting overwhelmed by credit card debt, it’s absolutely necessary.

Reducing the total amount of credit you owe can make a huge improvement on your credit score.

Get a secured credit card for bad credit

For many people, getting a secured credit card is the first step in either getting or improving their credit score.

For young adults who want to get their first credit card, it can be difficult to get accepted since there’s no credit history associated to them yet.

Secured credit cards usually require a deposit which will often be equal to the amount of credit you’re allowed to use.

And on the issuer side of things, it’s less of a risk for them since there is some collateral in case you don’t make your payments.

Visit a credit counsellor

As a last resort, if you can’t seem to get a handle on your credit card debt, it might be worth looking into debt consolidation or speaking with a credit counsellor.

Keep good credit

Once the basics have been laid out, having good credit is relatively easy.

Make your payments on time, don’t spend too much, and you’re all set.

Have you ever dealt with poor credit or credit card debt?

Did you think our tips were helpful?

Let us know in the comments below.