Understanding Your Credit Score

Understanding Your Credit Score: A Step-by-Step Guide

Your credit score is a snapshot of your financial trustworthiness and stability. Lenders, landlords, and even some employers use it to assess your likelihood of meeting financial obligations. A strong score unlocks opportunities for credit loans, lower interest rates, better loan terms, and greater financial options. Conversely, a weak score brings higher costs and limited choices.

At American Financial Solutions (AFS), we believe knowledge is key to lasting financial health. We focus on education, personalized counseling, and tools to help you build strong credit and a stable financial future. In this guide, you’ll learn what a credit score is, why it’s important, and how to improve it.

What Is a Credit Score and Why Does It Matter?

A credit score is a three-digit number that summarizes your credit history. It’s calculated using data from your credit reports, such as your payment history, total debts, length of credit history, and more.

Most lenders use FICO scores, which range from 300 to 850. Another common scoring method is VantageScore, which uses similar factors but weighs them differently. While the formulas vary, both systems use the following credit score ranges:

• Poor: 300-579
• Fair: 580-669
• Good: 670-739
• Very good: 740-799
• Excellent: 800-850

 The higher your score, the more likely you are to qualify for loans, credit cards, and rental housing with favorable terms, such as lower interest rates. If you have a lower credit score, there are ways to improve it with time.

Step 1 – Review Your Credit Reports

The first step to improving your credit score is to review your current score and reports.

Where to Get Free Credit Reports

You’re entitled to a free credit report from AnnualCreditReport.com. This report is available once every 12 months from each of the three major credit bureaus: Equifax, Experian, and TransUnion. Many banks, credit card issuers, and nonprofit agencies also provide access to your reports or scores at no cost.

Check for Errors or Inaccuracies

Mistakes happen. However, incorrect credit account balances, accounts that don’t belong to you, or outdated information can all harm your score. To prevent errors, you should perform regular credit checks. If you find an error, file a dispute directly with the credit bureau. Correcting inaccuracies can sometimes lead to a quick score boost.

How AFS Can Help You Interpret Reports

Credit reports can be confusing. At AFS, our certified credit counselors can walk you through your reports, explain what each section means, and help you identify opportunities for improvement.

Step 2 – Key Factors That Affect Your Credit Score

You also need to understand what aspects influence your credit score. They include:

Payment History

Your payment history has the biggest impact on your score. Paying all bills, personal and auto loans, credit cards, and utilities on time is essential. When you pay on time and in full, your credit score is higher than if you pay late or make partial payments. Late payments can negatively impact your score.

Credit Utilization

Credit utilization is the percentage of available credit you’re using. Keeping your balances below 30% of your credit limit can significantly help your score. It also leaves room for you to borrow money if an emergency or unexpected event occurs.

Length of Credit History

The longer you’ve responsibly managed your credit, the better. A long history shows that you’re a dependable borrower and can make regular payments over time. Avoid closing older accounts unless necessary.

Credit Mix and Inquiries

Having several types of credit and lines of credit, like credit cards, mortgage loans, and personal loans, can be positive. However, this is a delicate balance. When you submit a credit application, your bank or credit union may run a hard inquiry on your credit report to determine your creditworthiness. Too many hard inquiries over a short time can temporarily lower your score.

Step 3 – Strategies to Build or Improve Your Credit

A low credit score can raise your credit risk, which may impact your ability to be approved for a loan or open a new credit account. If you are approved, your personal loan or car loan may have high interest rates or a shorter repayment period. However, there are strategies you can use to build or improve your credit, including:

• Make consistent, on-time payments: Set reminders, use autopay, or schedule payments ahead of time to ensure nothing slips through the cracks. Delinquent payments every month can negatively impact your credit score and lower your creditworthiness. 
• Pay down high-interest debt first: High-interest accounts cost more over time and can keep you in debt longer. Paying these down can free up funds and lower your credit utilization. AFS can help create a structured repayment plan to help you tackle your debt efficiently.
• Avoid quick fixes: Be cautious of companies promising to fix your credit instantly. Many use risky or even illegal tactics. At AFS, our approach focuses on education and sustainable financial habits.

Step 4 – How a Debt Management Plan (DMP) Can Improve Your Score

What is a Debt Management Plan?

A DMP is a structured repayment program for unsecured debts like credit cards or student loans. Through AFS, your amounts owed are consolidated into a single monthly payment. We work with creditors to negotiate lower interest rates and waive certain fees, making the payoff faster and more affordable for you.

Credit Score Benefits of a DMP

Consistent, on-time payments through a DMP can improve your credit and payment history over time. Lower interest rates help you pay down balances faster, reducing your credit utilization ratio. These simplified payments and reduced utilization are a win for your credit score and monthly budget.

Step 5 – Monitor and Track Your Credit Progress

Credit monitoring tools can alert you to changes in your reports, whether it’s a new account, a missed payment, or a hard inquiry. Even small improvements in payment history and utilization can create noticeable gains in your score over time. When working to strengthen your credit score, patience and consistency are key.

Step 6 – When to Seek Professional Help

If you’re overwhelmed by debt or struggling to improve your score despite your best efforts, it may be time to speak with a professional. AFS counselors take a full look at your financial situation. We help you weigh all your options, including budgeting, debt repayment strategies, and DMPs. Unlike debt settlement companies, we focus on preserving your credit and setting you up for long-term success.

Why AFS Is Your Trusted Resource for Paying Off Debt Faster

Nonprofit, Accredited Credit Counseling

As a nonprofit, AFS’s mission is to help you, not to profit from your financial struggles. We’re accredited by the National Foundation for Credit Counseling, ensuring our services meet the highest standards.

Proven Track Record

We’ve helped thousands of clients pay off billions in debt. Our reputation is based on our history of high client satisfaction and measurable results.

Personalized Financial Education and Support

At AFS, we provide more than debt management. Our team offers ongoing resources, financial tools, and one-on-one guidance so you can continue building your financial future with confidence.

Take Control of Your Credit and Debt

Understanding your credit score is important when getting approved for a loan. However, it’s also about building a foundation for financial freedom. By learning what impacts your score and making smart, consistent choices, you can unlock better opportunities and reduce financial stress.

If you’re ready to take the next step in achieving your financial goals and take control of your debt, our team can help you get there. Contact us today at AFS to learn more about our confidential credit counseling and debt management plan options.

Published Sep 22, 2025.