How Credit Scores Work

Module Goal

Teach the major score factors and how financial behavior influences scores.

Lesson 2.1 — Payment History

Lesson Content
Payment history is one of the most important parts of a credit profile. It reflects whether
bills have been paid on time. Late payments, collections, charge-offs, and similar
negative items can hurt a score by suggesting repayment risk.
Consistent on-time payments help build stability. Even one missed payment can have
an impact, especially if it becomes seriously delinquent. Good payment habits are one
of the strongest signals of responsible credit use.

Lesson 2.2 — Credit Utilization

Lesson Content
Credit utilization refers to how much revolving credit you are using compared with your
total available limit. For example, if you have a credit card with a $1,000 limit and carry
a $300 balance, your utilization on that card is 30%.
Lower utilization is generally viewed more favorably than high utilization. High balances
can signal financial stress, even if payments are made on time. Many people aim to
keep utilization low to support healthier score behavior.

Lesson 2.3 — Age of Credit and Account Mix

Lesson Content
The age of your credit accounts matters because older accounts provide more history
for lenders to review. A longer track record can help show stable account management
over time.
Account mix also matters. A profile with different types of accounts, such as revolving
accounts and installment loans, may appear more established than one with only a
single type. However, people should not open unnecessary accounts just to create
variety.

Lesson 2.4 — Inquiries and New Credit

Lesson Content

Applying for new credit can lead to a hard inquiry. A hard inquiry may occur when a
lender reviews your credit for a loan or credit card application. Too many applications in
a short period can be seen as a risk signal.
New credit can help in some situations, but opening accounts too quickly may lower
average account age and raise questions about borrowing behavior. Applications should
be intentional, not impulsive.