While a high credit score pays off in perks, a low one gives financial institutions less reason to trust you. Without a good score, you may have to pay higher interest rates and put down security deposits. If your score is bad enough, you may not even qualify for the loan you need at all.
And of the various mistakes you can make that can hurt your credit score, one stands out, Rod Griffin, director of consumer education and awareness at Experian, tells CNBC Make It. "The No. 1 thing that hurts people's scores is late payments," Griffin says. Missing a deadline may seem harmless enough, but it has a surprisingly significant impact.
Payment history, or whether you've made your payments on time, matters most when your score is calculated. And it's not just credit card payments you have to worry about. Whether you're responsible about handling your rent, utilities and other bills can make or break your score, too.
How the score breaks down
Experian is one of three major credit bureaus that collects your financial data — along with Equifax and TransUnion — and agencies like FICO and VantageScore use their reports to issue your score.
Your score is calculated based on payment history, how much you owe, your length of credit history, the types of credit you have and how often you apply for new credit.
FICO credit score factors
| Factors | Weight |
|---|---|
| Payment history | 35 percent |
| Amounts owed | 30 percent |
| Length of credit history | 15 percent |
| Credit mix | 10 percent |
| New credit | 10 percent |
Income doesn't affect your score, and nor does your spouse's financial behavior until you open a shared account. Even revolving debt won't hurt you. These are all common misconceptions.
"Carrying balances from month to month and incurring interest fees absolutely doesn't help your score," Ethan Dornhelm, vice president of scores and predictive analytics at FICO, tells CNBC Make It.
Generally, the less you use of your available credit, the better. As a rule, you should try to keep your utilization ratio below 30 percent. Carrying a high balance is the second most common issue that negatively affects people's scores, according to Griffin.
What is a good score?
You can have various scores for different types of loans, but they'll all be in the same ballpark, since they each reflect the same credit report. FICO scores range from around 300 to 850. An excellent score is 750 or above, which will get you the best rates. Anything below around 650 is considered problematic.
"If you're 700 or above, you'll generally be considered prime," says Griffin. "You may not get the best rates, but you'll typically qualify."
Griffin recommends checking your report at least once a year, which is free and will not damage your score. (The idea that monitoring your score hurts it is another common misconception.) "You can't do anything about your credit report until you know what's in it," says Griffin. "If there's something you need to address, take action."
If you're like most consumers, raising your score could simply be a matter of consistently paying your bills on time and keeping your balances low. "Everything else," Griffin says, "builds on those two factors."
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