What Is a Credit Score? How It Works, What Affects It, and How to Improve Yours

Your credit score is one of the most important numbers in your financial life — but for many people, it’s also one of the most misunderstood. Whether you’re applying for a car loan, trying to rent an apartment, or considering bankruptcy, understanding your credit score is key to taking control of your finances.

It is important to understand what your credit score is, how it’s calculated, what factors impact it, and how to improve it — especially after dealing with financial hardship.

What Is a Credit Score?

A credit score is a three-digit number that represents your credit risk — essentially, how likely you are to repay borrowed money. Lenders use this number to help decide whether to approve you for a loan or credit card, how much interest to charge, and sometimes even whether to rent you an apartment.

Scores typically range from 300 to 850. The higher the score, the better your credit.

Who Creates Your Credit Score?

There are two main scoring models:

• FICO Score – Used by over 90% of top lenders

• VantageScore – Increasingly used by free credit monitoring services and some lenders

Your credit score is based on information in your credit reports from the three major credit bureaus:

• Equifax

• Experian

• TransUnion

These bureaus collect your payment and account history and provide the data used to calculate your score.

What Is a Good Credit Score?

Here’s a breakdown of FICO score ranges:

Higher scores can qualify you for:

• Lower interest rates

• Higher credit limits

• Better insurance rates

• Security deposit waivers

• More favorable loan terms

What Factors Affect Your Credit Score?

🔹 1. Payment History (35%)

The biggest factor. On-time payments help your score. Late payments, collections, charge-offs, and bankruptcies hurt it.

🔹 2. Credit Utilization (30%)

This refers to how much of your available credit you’re using. Try to keep usage below 30%, and ideally under 10% for the best scores.

✅ Tip: Even if you pay in full, high reported balances can lower your score. Use cards with low balances or pay before the statement closes.

🔹 3. Length of Credit History (15%)

Older accounts are better. Closing long-standing credit cards may lower your average account age and hurt your score.

🔹 4. Credit Mix (10%)

Having both revolving credit (credit cards) and installment credit (loans) can boost your score slightly.

🔹 5. New Credit and Inquiries (10%)

Each hard inquiry (e.g., loan applications) can slightly lower your score for up to 12 months. Too many inquiries may signal financial stress.

How Often Does Your Credit Score Update?

• Most lenders report to the credit bureaus once a month

• Your score can update weekly or even daily depending on account activity

• Credit monitoring apps may lag behind real-time updates

Common Credit Score Myths

❌ Checking your own credit hurts your score

✅ False: Personal credit checks are soft inquiries and do not affect your score.

❌ Paying off debt immediately boosts your score

✅ Partially true: Your score improves when balances are low, but the timing of credit reporting matters.

❌ Bankruptcy ruins your score forever

✅ False: While bankruptcy lowers your score initially, many clients see scores rebound quickly — especially if they were already behind before filing.

Can You Improve Your Credit Score?

Yes — here’s how:

• Make all payments on time, even if it’s just the minimum

• Pay down high balances on credit cards

• Don’t close old accounts unless necessary

• Limit applications for new credit

• Use tools like secured credit cards or credit-builder loans

✅ Rebuilding credit is about consistent positive activity — not quick fixes.

Extra Tips for Rebuilding Credit

📌 Become an Authorized User

Being added to a family member’s or spouse’s credit card with a strong payment history can help your score — as long as they keep balances low.

📌 Consider “Experian Boost”

This free tool lets you add on-time payments for utilities and streaming services to your credit report. Note: It only applies to Experian credit scores.

📌 Monitor Your Reports

You can check all three credit reports for free every year at AnnualCreditReport.com. You can now check weekly through at least December 2025.

What About Collections and Settled Accounts?

• Unpaid collections hurt your score the most

• Paid collections may still show, but newer scoring models (FICO 9, VantageScore 3.0+) ignore paid collections

• Settling a debt for less than owed typically will impact your credit less than defaulting — but it still shows as “settled”. It is better to settle an account than have an outstanding debt that is unpaid and delinquent.

How Bankruptcy Affects Credit — and Can Help It

If you’re drowning in debt and behind on payments, your credit score has likely already taken a hit. Bankruptcy is a tool to manage debt, but it can also help you restart your credit. 

Filing bankruptcy can:

• Stop the bleeding and prevent further damage

• Wipe out unsecured debt like credit cards and medical bills

• Allow you to rebuild credit faster than continuing to fall behind

Most clients who file Chapter 7 bankruptcy see their score:

• Drop slightly if it wasn’t already low

• Improve within months after discharge

• Reach over 700 within 2–3 years, especially with smart credit use

Real-Life Credit Recovery Example

A couple came to us with credit scores in the 520 to 550 range and over $80,000 in credit card debt. After filing Chapter 7 and discharging their debt, their scores improved to the 600s within a few months. Within two years, both were over 700 and qualified for a mortgage.

FAQs About Credit Scores

Q: Will bankruptcy remove all negative items?
A: It won’t remove all history, but it shows debts were discharged. Accounts should show a $0 balance and “discharged in bankruptcy.”

Q: Can I file bankruptcy just for credit cards?
A: Yes, but you must include all debts. You can’t pick and choose. Some secured debts can be handled differently, like keeping a car loan if you’re current.

Q: How long do late payments stay on your credit?
A: Up to 7 years, but their impact fades with time and good behavior.

Q: Will settling a debt improve my credit?
A: Somewhat — it’s better than default, but not as good as paying in full. And you may owe taxes on the forgiven amount.

Final Thoughts

Credit scores are important — but they’re not everything. If your score is low due to high debt or missed payments, the best way forward might be addressing the debt itself. Sometimes that means negotiating, sometimes it means budgeting — and sometimes it means bankruptcy.

At Ashley F. Morgan Law, PC, we help clients in Virginia take control of their debt and rebuild their credit with confidence.

💬 Need Help With Credit or Debt?

If you’re feeling overwhelmed, you’re not alone. We offer free consultations to review your situation and help you explore real solutions — whether it’s budgeting, settlement, or bankruptcy.