Credit Score 101: Expert Tips — and Common Mistakes to Avoid

For this edition of On the Money, paid for by Intuit Credit Karma, personal finance expert and host of the “So Money” podcast Farnoosh Torabi stopped by TODAY to share what actually matters when it comes to credit scores.

One of the very first “money lessons” I remember learning about credit turned out to be completely wrong. As a young adult, a relative told me that carrying a balance on my credit card would actually help my credit score. The thinking was that lenders wanted to see I was using my available credit.

The reality? There’s a big difference between “using” credit and using it responsibly. Credit scoring models want to see that you’re reliable, which means that you borrow money and consistently pay it back on time. In good practice, that doesn’t mean carrying a balance from month to month. It means paying off your credit card statement in full each month, one of the healthiest habits you can build.

That experience made something very clear: Credit can feel incredibly confusing, and misinformation too often gets passed form one generation to the next. Whether you’re applying for your first credit card, shopping for a mortgage or simply trying to improve your financial health, understanding how credit works can save you money and open doors.

Here’s what everyone should know about credit, how your credit score is calculated and the simple habits that can help improve it.

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At it’s simplest, credit is a financial tool that lets you buy something today and pay for it over time. Whether you’re swiping a credit card for a new laptop, taking out a student loan for college, or getting a mortgage to buy a home, you’re borrowing money now with the agreement that you’ll pay it back later.

According to the Federal Reserve, Americans had about $5.1 trillion in outstanding consumer credit as of April 2026 — that means Americans depends a lot on borrowing money to live our lives. $5.1 trillion is the total amount of consumers still owe on borrowing (outside of a mortgage). That includes credit cards, auto loans, student loans and other consumer loans.

That’s where your credit score comes in. Think of your credit score as an SAT score for your borrowing habits. It’s a number — typically between 300 and 850 — that measures your credibility or trustworthiness as a borrower. This score is important because whenever you apply for a credit card, a loan or a mortgage, lenders and financial institutions will review this score to determine if you’re eligible and what type of interest rate and terms to attach to your credit card or loan.

The higher the number, the better. In general, borrowers with scores in the high 700s and above qualify for the best interest rates.

Your credit score is based on a handful of factors, and some matter more than others.

• Payment history (about 35%): This is the biggest ingredient. This is a measure of how well you’ve been paying your credit balances on time.
• Debt to credit utilization (about 30%): This is the second biggest influence. This is the ratio of your current credit card balances divided by your credit card limits. The lower your debt to credit utilization, the better.
• Length of your credit history (about 15%): The longer you have established credit, the better. If you opened up your first credit card yesterday, your credit history is very short and may not give your score as much juice.
• Your mix of credit (about 10%): Financial institutions and lenders like seeing that you’ve managed different kinds of borrowing responsibly. A healthy variety strengthens your case as someone who is “good” with managing credit.
• New credit (10%): Every time you apply for new credit, a lender may perform what’s called a “hard inquiry” or “hard pull.” A lot of these in a short window of time is not a positive sign and can suggest to banks that you’re in a financial crisis. There is one important exception: If you’re shopping for a mortgage or auto loan, multiple inquiries made within a 45-day window typically count as a single inquiry.

And, no, checking your own credit score does not hurt your credit. This is a widespread myth.

• Carrying a balance on your credit card: One myth I often hear, and one that I even learned way back when, is that keeping a balance on your credit cards is good for your score because it shows you are using your credit card. But there’s a difference between using your credit card and being responsible with your credit card. Credit score calculators want to see that you’re being responsible, which means using the card and then paying the balance off on time.
• Opening a store credit card: I love a discount, but it’s usually not worth it to open a store credit card to save an immediate 15%. Store credit cards typically come with very low card limits, so you buy a few items and you may be close to maxing out the card. They also carry relatively high interest rates. If you’re considering opening a retail card, ask yourself whether it provides ongoing value, like cash back or meaningful rewards. And always pay off the balance in full each month to avoid interest burden.
• Not knowing your partner’s credit score until it’s too late: I’ve seen this happen more times than I’d like. Couples that go to buy a car or a house together may forget to review each other’s credit scores ahead of trying to quality for a loan only to find out that maybe one partner has a much lower score. Knowing this ahead of time they could have taken the appropriate steps to improve their partner’s score and qualify for a much better loan and rate.
• Closing old accounts: People often assume unused credit cards should automatically be closed. But remember that the length of credit history factors into your score. Your history starts with that first account you opened. Even if you don’t use the card, I say keep it open. It helps your score. Some card issuers will close accounts that have been sitting dormant for a while, so if this card carries a tall limit and been in your profile for years, I’d say connect a small bill to it and pay it off automatically each month. Think of it as keeping the account on life support.

The good news is that improving your credit usually doesn’t require anything dramatic. It’s mostly about consistency.

• Pay every bill on time: Lateness or delinquencies can really hurt your score. Make it simple by automating your bill payments so you never miss a deadline.
• Pay your credit card statements in full whenever possible: In other words, don’t carry a balance month to month.
• Keep your balances low: If you do need to carry a balance, try to keep it below 30% of your credit limit. In other words, avoid maxing out your cards.
• Consider becoming an authorized user on your spouse or parent’s credit card: This isn’t for everyone, but if you want to quickly establish credit (and good credit) becoming an authorized user on a spouse or parent’s credit card accounts, assuming the spouse or parent pays their bills on time, allows your credit score to benefit from all that positive activity and history. Not all credit issuers allow this, so check your credit card company for the rules.

And lastly, checking your credit score often and knowing how it’s changing over time is so important. Our sponsor Credit Karma has an app that can help you track your score and spot any red flags so you can fix them.

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How Your Credit Score Works (and How to Boost it)

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• Farnoosh Torabi is a personal finance expert, bestselling author and host of the award-winning podcast, “So Money.”