Understanding credit scores and how to improve yours

Most of us rely on credit—or borrowed money we repay later—to manage our financial lives. Mortgages, credit cards, home equity lines of credit and auto loans are common types of credit. But whether a bank or other creditor extends credit to you and under what terms often depends on a key number: your credit score.

Understanding credit scores, including how a credit score works and how to maintain a healthy one, can potentially save you thousands of dollars over time. Even if you already have a high score, reviewing your credit regularly can make you aware of fraudulent activity or inaccurate information that could negatively impact you.

What is a credit score?

A credit score is a three-digit number that helps lenders evaluate how likely you are to repay borrowed money. It's based on information in your credit report and gives lenders a quick snapshot of your credit health.

Credit report versus credit score

Your credit report is a detailed record of how you manage your finances. The three major credit-reporting companies—Equifax, Experian and TransUnion—develop and maintain their own reports, including information such as:

• History of payments
• Loan balances
• Open accounts
• Collection actions
• Bankruptcies
• Other related financial information

Positive information like on-time payments and open accounts in good standing may remain on your report indefinitely. Negative information, including foreclosures and late or missed payments, generally remains for 7 years. A Chapter 7 bankruptcy that wipes out most debts lingers for 10 years.

Your credit score is calculated using the information from your credit report. Scores typically range from 300 to 850, with higher numbers indicating stronger credit health. Your score may vary slightly depending on which scoring model a lender uses.

How are credit scores calculated?

There are two major consumer credit scoring models: FICO and VantageScore. FICO has been the industry standard for almost four decades. While VantageScore wasn't introduced until 2006, it's been widely adopted by lenders for credit cards and auto loans and now can be used for government-backed VA and FHA mortgages, as well as mortgages guaranteed by Fannie Mae and Freddie Mac.

FICO and VantageScore grade creditworthiness on the same scale, but your number can vary between the two. This is because both models consider similar factors but weigh them differently.

Payment history—whether you pay your debts on time—is the most important factor for both models. Credit utilization, or how much of your available credit you use, is also heavily weighted. Other factors that can affect your score include:

• Length of credit history
• Mix of credit accounts, such as credit cards, mortgages and student loans
• Recently opened credit accounts

Both FICO and VantageScore periodically update their models, so lenders may use different versions depending on the type of loan or credit application.

Why you may have multiple credit scores

Lenders decide which scoring model and reporting company to use when evaluating applications. Many also have their own proprietary scores or might use a score tailored for a specific industry, such as the auto sector.

Additionally, credit reports from Equifax, Experian and TransUnion may contain different information. This is why you can have three different FICO scores—one for each report—even if FICO is the only scoring model used.

What's a good credit score?

FICO and VantageScore differ on how they grade scores. Generally, a good score is 670 to 739 with FICO and 661 to 780 with VantageScore. Here's how your score could influence whether your credit application is approved and the terms you're likely to receive.

Impact of credit scores on the cost of borrowing

Lenders generally offer their best rates to borrowers with higher credit scores because they view them as less likely to default. Tools like the myFICO savings calculator can help estimate how your score may affect borrowing costs over time.

For example, consider two homebuyers applying for a 30-year fixed-rate mortgage for $350,000. According to the FICO tool, as of May 7, 2026, a borrower with a FICO score of 780 or higher may qualify for a 6.46% interest rate and an estimated monthly payment of $2,203. A borrower with a 620 score, however, may only qualify for a 7.29% rate, which translates to a monthly payment of $2,390. Over the life of the loan, this borrower could pay almost $70,000 more in interest.

Boosting your score even a little can pay off big. In this example, increasing a score from 620 to 640 could reduce total interest costs by more than $15,000 over 30 years.

How to improve your credit score

One of the fastest ways to improve your credit score is to pay down credit card balances. This lowers your credit utilization—or how much available credit you're using—which is a major scoring factor.

Ideally, you'd keep your combined credit card balances below 30% of your available credit. However, consumers with the highest scores often keep their utilization rate under 10%.

Here's how to improve your credit score in other ways.

• Review your credit reports for any errors. You can get free weekly credit reports from Equifax, Experian and TransUnion at AnnualCreditReport.com. Dispute any inaccurate information with the company reporting it.
• Pay bills on time. If you've missed payments in the past, it can take several months of consistent, on-time payments to see an improvement. Consider enrolling in digital banking to set up autopay or payment alerts, which can help you avoid missed due dates.
• Use credit cards responsibly. Making a series of small purchases and paying these balances in full each month can help you build a positive payment history.
• Avoid opening several new accounts in a short period. Multiple credit applications can lower your score and may signal a higher risk to lenders.

Comprehensive financial tools like First Citizens Bank's Manage My Money, available to customers enrolled in Digital Banking, can help you stay on top of your finances. Create a budget, track spending and monitor transactions on all accounts—even those outside the bank.

How to build a credit history from scratch

If you have limited or no credit history, there are several ways to start building credit.

• Become an authorized user. A family member or trusted friend can add you as an authorized user on their credit card account. If the account is managed responsibly with on-time payments and low balances, this positive history may appear on your credit reports. However, missed payments or high balances can also affect your credit.
• Open a secured credit card account. Many major banks offer secured credit card accounts. You provide a refundable deposit that becomes your credit limit. Using the card regularly and paying balances on time will help you build a credit history. Some issuers may later allow you to upgrade to a traditional unsecured card.

Some routine financial transactions can also help build or improve your credit score. Renters, for example, can ask their landlord to report monthly rental payments to the three major credit-reporting companies.

Programs such as UltraFICO may also consider responsible banking behavior. By linking your savings and checking accounts, you can receive credit for certain positive financial activity like maintaining consistent account balances.

More frequently asked questions about credit scores

Here are answers to additional questions people often have about credit scores.

Is no credit the same as bad credit?

No credit means you have little or no credit history, so there may not be enough information to generate a credit score. An estimated 7 million consumers were considered credit-invisible as of late 2020, according to a 2025 report from the Consumer Financial Protection Bureau (PDF). Young adults just starting out often find themselves in this situation.

Bad credit occurs when your credit report is peppered with negative information, such as overdue payments, collection actions or a foreclosure.

Which credit score matters most?

The most important credit score is the one a prospective lender uses when deciding on your application. The FICO 8 score remains the most widely used, although mortgage lenders often use older versions.

Lenders and credit card issuers aren't required to tell you up front which scoring model they use, but you can ask. If your application for a loan or line of credit is denied, however, the lender or card issuer must notify you of the reasons and provide the score it used when making its decision.

However, don't wait for a rejection to find out where you stand. It's smart to check your credit reports and scores before applying for new credit. Many banks, credit card issuers and financial apps provide free access to credit scores, giving you time to correct errors or improve factors that could affect your application.

The bottom line

Because they play an increasing role in our everyday lives, understanding credit scores—specifically what makes a good one and how to boost a low score—is an essential part of managing your finances.

Your score may determine whether you can rent an apartment or sign up for a mobile device plan. In most states, auto and homeowners insurance companies use scores to set premiums. And a healthy credit score can save you thousands of dollars in borrowing costs.

Fortunately, even if you have no credit or even poor credit, you can build a strong score with time and good financial habits.