Finance 101: Understanding Credit Scores and How to Improve Yours

© International Foundation for World Freedom

Hsuan Ching Chen, MS Business Analytics

February 3, 2025

Your credit score plays a crucial role in your financial life. It affects your ability to get a loan, rent an  apartment, or even qualify for certain jobs. But what exactly is a credit score, and how can you  improve yours? 

What Is a Credit Score? 

A credit score is a three-digit number (300–850) that shows how responsible you are with borrowed  money. Lenders, landlords, and even some employers check your credit score to decide whether to  trust you with loans, rental agreements, or financial responsibilities. 

In many countries, cash transactions are common, and credit scores may not exist. However, in the  U.S., using and managing credit wisely is essential for financial stability. 

How Is Your Credit Score Calculated? 

Your credit score is based on five key factors: 

1. Payment History (35%) – Do you pay your bills on time? 

2. Credit Utilization (30%) – How much of your available credit are you using? 3. Length of Credit History (15%) – How long have you been using credit? 

4. Credit Mix (10%) – Do you have different types of credit (e.g., credit cards, loans)?

5. New Credit Inquiries (10%) – Have you applied for too many new credit accounts recently? 

How to Build and Improve Your Credit Score? 

1. Open a U.S. Bank Account and Get a Secured Credit Card 

If you are new to the country and have no credit history, you can start by opening a secured  credit card. This requires a cash deposit as collateral, but it helps build your credit score.

2. Always Pay Your Bills on Time 

On-time payments are the most important factor in your credit score. Set up automatic  payments for your credit card, phone bills, and utilities to avoid late fees. 

3. Use Only a Small Amount of Your Credit Limit 

If your credit card limit is $1,000, try to use no more than $300 at a time. This keeps your credit  utilization low and improves your score. 

4. Do Not Apply for Too Many Credit Cards at Once 

Every time you apply for a new credit card, a hard inquiry is added to your credit report, which  can slightly lower your score. Apply only when necessary. 

5. Check Your Credit Report for Mistakes 

As an immigrant, errors can appear on your credit report due to incorrect personal details. You  can check your report for free once a year at AnnualCreditReport.com and dispute any  mistakes. 

Moving Forward 

A good credit score makes life in the U.S. much easier—it helps you qualify for better loans, lower  interest rates, and more financial opportunities. By using credit responsibly and following these simple  steps, you can build a strong credit history and secure a stable future.