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Credit Scores 101: The Good, the Bad, and Everything in Between

By admin

If we could write a guidebook to navigating “adult life,” there would be multiple money and finance chapters. There is so much that we don’t ever really learn until it comes down to the wire. And while we can’t cover everything at once, we can break personal finance down into some of the meatiest topics.


Today we’re talking about scores. By gaining a better understanding of your credit score, you’ll be equipped to make more educated financial decisions and plan for a future where you won’t have to nickel and dime everything. 


What is credit?


According to, credit is “a contractual agreement in which a borrower receives money from another person or institution (usually a bank) with an agreement to pay the money back sometime in the future, typically with interest.”


What is a credit score/credit report and what’s the difference between them?


Think of your credit report as a book, and your credit score as the synopsis on the back cover of the book. 


Your credit report can contain information around your debt, your open accounts and who they are with, how long you’ve had credit cards/accounts, and a record of how you’ve paid off your credit in the past. Your credit report does not have your credit score on it, per se, but it does hold all the information that determines that number. 


Your credit score is a calculation of all of this activity. The score can range from 300–850; the higher the score, the more reliable of a borrower you appear to be to lenders. A credit report has a detailed record of your credit and payment history, while your credit score is a number that is created based on the details within your report.


What is the typical range of credit scores?


As we mentioned above, credit scores can range from 300-850. This score is mainly used by banks to determine how reliable of a borrower you are and what interest you should be charged. Anyone with a score below 640 is considered a “subprime borrower” and can face higher mortgages or interest rates. Any scores between 700 – 800 are considered good and 800+ are considered excellent. Check out a specific breakdown below from Investopedia.


  • Excellent: 800 to 850
  • Very Good: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: 300 to 579


Your credit score can change often, so don’t feel like you’re stuck with your current score forever. 


How is my credit score determined?


Your score can depend on the kind of scoring model used, but a lot of banks use FICO. This method determines your score by drawing from all of the information in your credit report, which can range from payment history to different types of credit use


According to Experian, FICO determines its credit scoring according to the following breakdown:


  • 35%: Your payment history
  • 30%: Your amounts owed
  • 15%: The length of your credit history 
  • 10%: Your new credit, or how often you apply for and open new accounts
  • 10%: A credit mix, meaning a variety of installment loans and revolving credit accounts


How do I find out what my credit score is?


You can likely check on your credit score through your credit card provider, whether that be Wells Fargo, Citi Bank, Discover, or others. The credit score service that your issuer works with will pull your score information from one of three major bureaus: Experian, Equifax, or TransUnion. 


You can also check your score through platforms like Mint or Credit Karma. Checking your credit score this way will not affect it, and it’s actually good to check your score consistently to see how you are tracking and whether your score is going up or down.


What is the difference between a ‘soft inquiry’ and a ‘hard inquiry’?


Checking your credit score through your issuer is considered a ‘soft check/inquiry’ because it will not affect the score and is only visible to you when you request your credit report. In addition to personal credit checks, soft inquiries can also occur with employment applications, insurance applications, pre-approved credit offers, and more.


A ‘hard check’ of your credit score has the potential to lower your credit score, and will show up on your credit report. This typically takes place when you are applying for something like a loan, a new apartment, a credit card, and more. 


Why does it do this, you ask? According to this Forbes article, “statistics show that consumers who apply for new credit are riskier compared with consumers who do not.” Hence the more your credit score is checked for things like new credit lines, the riskier of a borrower you become in a lender’s eyes. 


How does using my credit card affect my score?


To build good credit, you have to use credit! This is where using your credit card comes into play, because it shows lenders whether or not you can be counted on for consistent and on-time payment. If you pay off your card on time consistently and never pay less than the minimum, then you are demonstrating that you are financially responsible and dependable. 


So as long as you are using your credit card responsibly, it should positively impact your score. But be aware that the opposite is true as well: if you’re using up the maximum credit available on your card and missing payments, your credit score could take a hit. 


How do I know if I have the right credit card?


You have to pick the credit card that best suits your needs. When selecting a credit card you should consider your current credit score, if you have past history. If you’re in a good spot score-wise, your options can be endless. If you are in the fair-to-poor credit score range, your options may be more limited, but you still have choices! 


Knowing where you stand score-wise is an important first step. Then, from the options available to you, you can choose the type of card that works best for you and offers the most benefits. A few types include:


  • Credit-building cards (ideal for those trying to repair their credit)
  • Balance transfer cards (ideal for those trying to pay off debt)
  • Low-interest credit card (ideal for those carrying a long-term balance) 
  • Rewards credit card (ideal for those with good to excellent credit that want to earn cash back or points via sign-up bonuses and purchases)


You can select the type of card based on your current standing and goals and go from there. You can always change up your credit card provider, but keep in mind that when you apply for a credit card it typically involves a hard credit check which can potentially lower your score, creating a bit of a catch-22. 


If you are generally credit averse but want to access a bit more spending power than your checking account allows, consider downloading the Zip app. Our Buy Now, Pay Later platform allows you to split any purchase into 4 easy installments over 6 weeks.* It’s easy to use and we don’t run a hard credit check when you sign up, unlike most credit card providers.


Why do I need to have a good credit score?


Having a good credit score affects a lot of bigger life decisions, namely whether or not you’ll be approved for things like loans, mortgages, apartments, insurance premiums, cell phone plans, interest rates, and more.


The better score you have, the easier it will be to get approved in these scenarios, because lenders will see you as a trustworthy borrower. Having a good credit score can also affect the kind of credit cards you can apply for, as we mentioned before, unlocking the opportunity to have cards that offer cash back, travel perks, and more.


How can I improve my credit score?


Your credit score is not a set number for life. By contrast, you always have the opportunity to improve it! How you approach this process depends on several factors, namely how you got your score and where it is today. 


Whatever your strategy, improving your score takes time, patience, and consistency. Here are a few tips to get you on the right track:


  • Make all of your payments on time
  • Use Zip to split any payment into four, making it more manageable to pay off any purchase over six weeks. With Zip, you don’t need to undergo a hard credit check and can connect your account to a debit card.
  • Pay off your existing debt
  • Avoid closing accounts
  • Keep your credit utilization rate low (we’re talking under 30% of your credit limit, ideally under 10%)


With time and hard work, you can improve your credit score and open the door to the future you want: whether that’s a new home, a new car, or just more financial freedom in your day-to-day life. Whatever your goal may be, we hope this guide moves you in the right direction.

Get started with Zip today

Zip’s editorial content is not written by a financial advisor. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

*For a $335 purchase, you’d make four $85.25 payments every two weeks starting today for a 31.11% annual percentage rate and a total of payments of $341. A $6 installment fee is charged at commencement – you pay $1.50 of this fee as a prepaid finance charge when you make your initial payment today. The remaining $4.50 is included in your future payments. Minimum purchase of $35 required. Estimation of installment payment and annual percentage rate excludes potential tax and shipping costs. Installment fees are $4 for purchases from $35 to $99.99, $5 for purchases from $100 to $199.99, and $6 for purchases $200 and above. Zip Pay Anywhere financing through Zip issued by WebBank, except for Zip originated loans in CO, NV, MA, and MD. All loans subject to credit approval.

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Shira Schwartz assum legimus vis cu, mel et utamur aeterno oblique, cu pro tota sanctus persecuti. In saperet detraxit est, his eros tollit ne. Minim eripuit percipitur eos ad, wisi periculis nam in. Tota dicit per ne, dicat summo elaboraret ne duo. Mei scaevola principes no, ea vix inani oporteat