Your credit score is one of the most important numbers in your financial life. It’s a reflection of your creditworthiness and can impact everything from the interest rate you pay on loans to your ability to rent an apartment or get a job. Understanding how credit scores work and how to improve yours is key to achieving your financial goals.

So, what exactly is a credit score? Essentially, it’s a three-digit number that summarizes your credit history and predicts your likelihood of repaying debt on time. Credit scores range from 300 to 850, with higher scores indicating better creditworthiness. The most commonly used credit score is the FICO score, which is used by 90% of lenders in the U.S.

There are several factors that go into calculating your credit score, including your payment history, credit utilization ratio, length of credit history, types of credit, and recent credit inquiries. Payment history and credit utilization ratio are typically the most important factors, accounting for 35% and 30% of your score, respectively.

So, how can you improve your credit score? Here are some tips:

Pay your bills on time: Late payments can have a major impact on your credit score, so it’s important to always pay your bills on time.

Keep your credit utilization ratio low: Your credit utilization ratio is the amount of credit you’re using relative to your total credit limit. Keeping this ratio below 30% is generally recommended.

Don’t close old credit accounts: The length of your credit history is an important factor in your credit score, so it’s generally better to keep old credit accounts open, even if you’re not using them.

Diversify your credit: Having a mix of different types of credit, such as credit cards, auto loans, and mortgages, can help boost your credit score.

Check your credit report regularly: Errors on your credit report can negatively impact your credit score, so it’s important to check your report regularly and dispute any errors you find.

Improving your credit score takes time and effort, but it’s worth it in the long run. A higher credit score can lead to lower interest rates on loans, which can save you thousands of dollars over time. It can also make it easier to get approved for credit and other financial products.

Your credit score is a crucial factor in your financial life, and understanding how it works and how to improve it is key to achieving your financial goals. By following these tips and making a conscious effort to manage your credit responsibly, you can build a strong credit history and achieve financial security.