Credit can be a scary subject to approach, whether or not you want to jump into it isn’t an option in most cases; credit determines a lot, but it can also be a great financial tool when used properly. When your credit score is good, your rates, loans, and other financial endeavors will be good, too.

The first step to managing a credit score is to understand how it is calculated. Read this guide to help you on your way to achieving financial freedom.

Why does credit score matter?

Most people know their credit scores, or at least have an idea of their range. However, if you haven’t looked at your score before you are entitled to one free credit score report every twelve months from any of three national credit reporting companies (Equifax, Experian, and TransUnion). There are many websites out there that claim to be free and secure, but it is best to use the ones authorized by the Federal Government.

Credit score matters for a number of reasons beyond applying for a credit card or loan. Overall, the number assigned to your name represents how likely you are to repay debts, which is a big deal to lenders in any capacity. From mortgage rates to insurance, credit scores can and will impact everyday finances.

How is a credit score calculated?

The calculation of your credit score, landing in the range of 300-850 points, is a measurement of a few factors. Here is a list of percentages to keep in mind.  This is based off the standard FICO® Score.

• 35 percent: Payment history. Missing a payment can be a score sinker, but paying on time, or even ahead of time, can be a great score boost.
• 30 percent: Amount owed. Depending on the amount of available credit to you, you can be either underextending or overextending. If the latter is the case, banks may believe you are at higher risk of defaulting.
• 15 percent: Length of credit. The more time you’ve spent building your credit, the better.
• 10 percent: Credit mix. The amount of credit cards or other types of credit you have can help or hurt you. It is best to have a good mix of credit cards, loans, and retail accounts.

10 percent: New credit. Banks will consider how much new credit you take on within a short period of time, so try to avoid opening multiple accounts in the span of a few months.

Credit scores are ranked as follows.

• 300-579: Very poor
• 380-669: Fair
• 670-739: Good
• 740-799: Very good
• 800-850. Exceptional

A trusted financial advisor can help you better understand your score and its potential impact on your financial wellbeing.

Can accessing my score lower it?

There are myths about credit everywhere. One of these myths is that checking your credit score will lower it. You can delight in the fact that you are able to look at your released score through your credit card company or other safe avenues as frequently as you’d like without penalty. In fact, checking your score regularly is a good way to ensure your information is accurate, up-to-date, and not compromised by fraud.

However, looking at your credit score or credit report is considered a “soft inquiry.” If you decide to make a large purchase, such as a home mortgage, shopping around for rates with lenders can affect your score as it is considered a “hard inquiry.”

Can I clean up and fix my credit score?

So, you’ve checked your score and you’re unhappy—don’t worry, you can bring it back up! These are a few tips to fight the bad FICO® rating.

Auto-pay is a tool you should use

Missing payments, as previously mentioned, is a score sinker. Utilize the auto-pay function on credit cards so you don’t miss any payments. You should still check in to ensure the payment went through and that you’re paying off as much as you can. This is merely a safety-net to prevent late payments.

Cancel unused cards

If you’re not using a certain credit card or line of credit, drop it. Unused credit is a waste on your score! It’s best to stick to cards and retailers you like and will utilize.

Downsize your debt

One of the simplest ways to bring your score back to where you want it is to get out of debt. If you’ve been using too much of your credit line, start paying in larger chunks if chipping away with the minimum payment isn’t getting you anywhere. Figure out where you can cut back on spending and put that money toward your debt.

You can master the credit world, as intimidating as it can be, but you don’t need to do it alone. A trusted financial advisor can cater to your specific needs when it comes to giving your credit a boost!