If you’re new to the world of finance, you likely have a lot of questions. Many college students and young professionals are just starting out building their own finances and getting their feet under them. One of the biggest aspects of finances comes in the form of credit. It affects everything from the ability to get approved for loans to interest rates–and more.

If you have questions about credit, check out this handy article for the answers!

What is a credit score?

Credit score is a number that reflects your creditworthiness. It is calculated taking into account your credit history, which can be found on your credit report.

How is my credit score calculated?

While every credit bureau may use a slightly different scoring method, all use these five main criteria when calculating credit scores:

1. Payment history – This reflects your responsibility as a borrower. Consistent on-time payments will increase your score while late or missed payments will damage it.
2. Credit utilization ratio – This shows the amount of credit you use compared to the total available credit limit. A high ratio can hurt your credit score. It indicates you’re using a high portion of your credit limit.
3. Length of credit history – This is the average age of all your credit accounts. A longer credit history is good for your score. Leaving older accounts open can help increase the length of your credit history.
4. Types of credit – Having a mix of installment credit (loans) and revolving credit (credit cards) is good for your score. It shows you have experience managing different types of credit.
5. New credit – Applying for too many lines of credit over a short period can affect your score. Every application triggers a hard credit inquiry, which shaves a few points off your score.

What is a good credit score?

Credit scores are indicated as a three digit number between 300 and 850. Because there are multiple credit scoring systems, what’s considered a good credit score may vary slightly depending on which system is used. Looking at the credit score range is a better way to determine where you stand. A good credit score range is anything above 670. Within that, there are different levels. Credit scores between 670 and 739 are good. Credit scores between 740 and 799 are ‘very good’ and anything above 800 is excellent.

Which factor has the biggest impact on my credit score?

Your payment history has the biggest impact on your credit score, accounting for up to 35% of your total score. Credit utilization ratio has the second biggest impact, making up 30% of your score. 15% of your score is credit age. Credit Mix and New Credit make up 10% each.

Why is it so important to maintain a high credit score?

Your credit score reveals a lot about whether or not you are a financial responsible borrower. Lenders check credit scores to assess the probability that a prospective borrower will repay the loan in a timely manner. The higher your credit score, the better you look to lenders and the better your chances of getting approved for loans. A higher score will also qualify you for a lower interest rate on your loan.

What can I do to improve my credit score?

You cannot improve your credit score overnight. It takes time. Consistently doing the things mentioned below will help improve your score steadily over time:

1. Pay all loans, credit cards, rent, and utility bills on time every time. Even one late payment can hurt your score.
2. Pay down revolving debt and keep balances low.
3. Keep older credit cards open even if you don’t need them. This only helps if you’re not paying annual fees on the card.
4. Avoid opening new credit accounts unless you absolutely need to.
5. Check your credit report regularly and get any inaccurate information corrected. An error or oversight on your report could hurt your score for no fault of yours.

How long does negative information stay on my credit report?

Negative information will stay on your report for about 7 years from the date of delinquency. This includes details about late or missed payments, accounts not being paid as agreed, and accounts sent to collection agencies. Bankruptcies may stay on your report from 7 to 10 years depending on the type of bankruptcy.

Why don’t I have a credit score yet?

If you don’t have a credit card or you haven’t borrowed money, you won’t have a credit score. Credit bureaus cannot generate a score without adequate credit information. Your credit score only gets generated after you use some type of credit. This could be after you get a credit card or after taking a loan. Using your lines of credit responsibly will help to build your score slowly and steadily.

Why do I have more than one credit score?

There are three main credit bureaus in the Unites States. These three use two main credit scoring models – FICO and VantageScore. Each lender can choose which scoring model they want to use. Each model also has multiple variations. All of these variations are why you have more than one credit score. However, you don’t have to worry about these variations when applying for a loan. Lenders understand how to analyze your credit scores from the different agencies. Moreover, they also use their own algorithms and scoring models to determine whether or not to approve your application.

How many credit cards do I need to build my credit score?

You need just one credit card to build credit provided that you use it responsibly. This means paying off all outstanding bills by the due date and keeping balances low. Consistently maxing out your credit card or missing due dates can do more harm than good.

Will new credit inquiries affect my score?

Prequalification inquiries that require only a soft credit check will not affect your score. However, applying for a credit card or loan will trigger a hard credit check, which will hurt your score by a few points. One inquiry may have a relatively small impact on your score. But applying for multiple lines of credit can damage your score considerably.