Cracking the Credit Code

(Mar. 25, 2025) — A strong credit score can open doors to financial opportunities, from securing a mortgage to getting the best interest rates on loans. But what exactly goes into this three-digit number, and how can you improve it?

What is a credit score?

A credit score, commonly referred to as a FICO® score, is a numerical representation of your creditworthiness, ranging from 300 to 850. Lenders use this number to determine how likely you are to repay your debts on time. The higher the score, the better your chances of securing loans with favorable terms.

What affects your credit score?

Credit scores are calculated based on five key factors:

• Payment history (35%) – Paying bills on time is the single most important factor. Even one missed payment can significantly lower your score.
• Amounts owed (30%) – Your credit utilization, or how much debt you owe compared to your available credit, plays a crucial role. Keeping balances low helps boost your score.
• Length of credit history (15%) – The longer your accounts have been open, the better. A lengthy credit history demonstrates responsible borrowing habits.
• Credit mix (10%) – Having a diverse mix of credit types – such as credit cards, auto loans and mortgages – can work in your favor.
• New credit inquiries (10%) – Applying for too much credit at once can be a red flag for lenders and may temporarily lower your score.

What credit score do you need for a mortgage?

If you’re hoping to buy a home, your credit score will play a critical role in loan approval and interest rates. Here’s how different scores stack up in terms of mortgage eligibility:

• Below 500 – Not eligible for a mortgage.
• 500-599 – Can qualify for an FHA loan, but with a high interest rate.
• 600-640 – Eligible for FHA loans and some down payment assistance programs.
• 641-699 – Greater access to the best down payment assistance programs.
• 700-719 – Qualifies for better interest rates.
• 720-779 – Even lower interest rates and better loan terms.
• 780+ – Considered excellent credit, unlocking the best interest rates available.

How to improve your credit score

Building and maintaining a high credit score takes strategy and consistency. Here are some proven ways to boost your score:

• Keep at least three active tradelines – These accounts should be open, in good standing and regularly used to show lenders you can manage credit responsibly.
• Limit new credit applications – Every hard inquiry lowers your score slightly, so only apply for credit when necessary.
• Don’t close old credit cards – Keeping older accounts open helps maintain your credit history length, which benefits your score.
• Use Experian Boost – This free tool allows you to add utility, phone and streaming service payments to your credit report, potentially increasing your score.
• Become an authorized user – If a family member has a well-maintained credit account, being added as an authorized user can help improve your credit.
• Pay all bills on time – Late payments can cause a drop of 100 points or more and stay on your credit report for seven years.
• Keep credit card balances low – Aim to use less than 50% of your available credit to avoid negatively impacting your score.
• Regularly check your credit report for errors – You’re entitled to a free annual credit report at annualcreditreport.com. Dispute any inaccuracies that could be dragging your score down.

Protecting your credit from fraud

With identity theft and scams on the rise, safeguarding your credit is more important than ever. Here’s how you can protect yourself:

• Place a fraud alert on your credit file if you suspect identity theft. This lasts for one year.
• Freeze your credit with all three major bureaus to prevent unauthorized accounts from being opened in your name.
• Military members can use an Active Duty Alert for added protection while deployed.
• Opt out of credit offers by visiting optoutprescreen.com to stop unsolicited mailers.
• Register with the National Do Not Call Registry at donotcall.gov to reduce telemarketing calls.

The bottom line

Your credit score isn’t just a number – it’s a key factor in your financial future. By understanding how it works and taking steps to improve it, you can unlock better borrowing opportunities, lower interest rates and greater financial security. Start making smart credit choices today and your future self will thank you!

Anna Kussmaul is a mortgage broker handling multiple loan types. Email her at Anna@StoneCastleMortgage.com