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🌱 Money Foundations · Lesson 5 of 11 · 9 min

How Credit Scores Really Work

📊 A nosy little 3-digit number quietly decides whether you get the apartment, the car, sometimes even the job — and it's been grading you this whole time without ever showing you the test. Let's go steal the answer key.

💡 Key idea

Pay on time, and keep balances low. That's ~65% of the whole score.

🧠 Why it matters

Your credit score (300–850) is basically your financial reputation — how reliably you repay borrowed money. Two factors do most of the heavy lifting: PAYMENT HISTORY (do you pay on time?) is about 35%, and CREDIT UTILIZATION (how much of your available credit you're using) is about 30%. The rest is the age of your accounts, your mix of credit types, and how often you apply for new credit.

🌍 In the real world

💡 Utilization tip most people miss: if your card limit is $1,000, try to keep the balance under $300 (30%). Same spending, just pay it down before the statement closes — and your score climbs without you earning a cent more.

📌 Takeaways

  • Payment history is the biggest factor (~35%)
  • Keep credit utilization under ~30%
  • On-time payments + low balances = most of the score

✅ Test yourself

What's the SINGLE biggest factor in your credit score?
  1. Your income
  2. Paying your bills on time
  3. Your age
  4. How much cash you have

Answer: B · Paying your bills on time

Payment history is roughly 35% of your score — lenders care most about whether you pay back on time.

Your card limit is $1,000. To help your score, keep the balance under...
  1. $1,000
  2. $900
  3. About $300
  4. It doesn't matter

Answer: C · About $300

Keeping utilization under ~30% (here, $300) signals you're not over-reliant on credit — and lifts your score.

Does your salary directly affect your credit score?
  1. Yes, higher salary = higher score
  2. No — the score measures repayment behavior, not income
  3. Only if you're self-employed
  4. Only over $100k

Answer: B · No — the score measures repayment behavior, not income

Income isn't in the score at all. It's about how reliably you handle borrowed money, not how much you earn.

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