About this video
Sal walks through a mock credit report with a score of 660, explaining the range of scores, hard versus soft inquiries, and the positive and negative indicators. He shows how a late payment, a charge-off and high credit utilization all hurt a credit score, and ends with three habits for building good credit.
You'll be able to
- explain where a credit score sits on the 300 to 850 range and what a score like 660 means for borrowing.
- tell the difference between a hard inquiry and a soft inquiry.
- calculate credit utilization and explain why keeping it below about 30% matters.
- identify negative items on a credit report, such as late payments and charge-offs.
Key words
- Credit score
- A number from 300 to 850 that summarises how reliably you have handled borrowed money.
- Hard inquiry
- A check of your credit by a lender because you applied to borrow money; many of them can lower your score a little.
- Soft inquiry
- A check of your credit that is not for borrowing, such as you checking your own score or an employer looking.
- Charge-off
- When a lender decides a very overdue debt probably won't be fully repaid and marks it down in its accounts, though you still owe it.
- Credit utilization
- The share of your available credit that you are using, for example a $300 balance on a $1,000 limit is 30%.
- Tax lien
- A claim the government puts on something you own when you owe it money, so it gets paid first if you sell.
Transcript
- [Instructor] What we have here is a mock credit report. Khan Academy does not actually issue credit reports, but this will help us understand what's actually going on with the credit report. Now, the most obvious thing that might jump out at you is this big graphic showing this credit score of a 660.
So this I would categorize as a decent credit score. Some people would call it fair. It can go as high as 850 and as low as 300. So this is right in between. So you could get some credit, but you're probably going to get, have to pay higher interest rates than someone with exceptional or very good credit.
Now, beyond the credit score, there's gonna be a lot more information here, and this is going to be used by people who you might actually be looking to get a loan with. And if they're looking to lend you money, they would do a hard inquiry on your credit. If this is just you trying to look at your credit score or if someone else is looking at it just to see how responsible you are, you've been with your money, say an employer, that's a soft inquiry where it's not actually to borrow money.
And the reason why they differentiate that is if you're making a lot of hard inquiries or a lot of people are making a lot of hard inquiries, it could be a sign that you're out to borrow a lot more money, which actually could ding your credit score a little bit.
So be careful about too many hard inquiries. Now, there's a lot of information here. How many open accounts? How many you closed, oldest account? Total current debt, $3,642. And we're gonna have more detail later on. It gives a summary of the positive and negative indicators.
So the open accounts are in good standing. Negative indicators. There's a 30-day late payment from January, 2026. One paid charge-off account. So a charge-off is essentially when something has become so overdue that the people who lent you the money essentially says, we don't necessarily think we're gonna get this whole thing back, so we're marking it down on our accounting.
Now that doesn't mean you still don't owe the money. You owe the money. And this one, it looks like you did eventually pay it off, and then there was a hard inquiry in the last 24 months. Once again, that's an inquiry because you applied for credit most likely.
Now, here's just a bunch of personal information, including the employers reported, and then we go into detail on the active accounts that you have. This one right over here, it looks like it is an auto loan of some kind. And this was that January 2026 late payment that we had here, which would ding your credit score a little bit.
And the further you get from it, as long as you keep paying it off, the credit score will over time hopefully get back to a reasonable level. This one right over here looks like it's a credit card, and we have a credit limit of a thousand dollars. And we are using, let's see, the balance we have on this.
It's varying between $295 and $620. Now, one thing to think about is credit utilization. In general, you want to keep your credit utilization below around 30%. So if we just look at this account, 30% credit utilization would be about $300. That means you're utilizing 30% of the credit that you have access to.
So here we're going a little bit higher than that 30%, and that's not our only, actually, we do have this third account, but this is the one that was not only late, it was 30 days late, then 60 days late, then 90 days late, and then eventually the people we owed the money to or this person owed the money to, the Riverline Credit Union, it was a credit card.
They charged it off. This is really bad for your credit score. Good that you, that this person eventually did pay it off, but then it closed the actual account. And this is an issue here because notice the balance is higher than the credit limit. So this was a really bad, a bad signal from a credit utilization point of view.
And actually, if you looked over here and you said, "Hey, that's high credit utilization", that at least in this situation was a predictor of this account eventually going bad in some way. The person who this credit report is for eventually did pay it off, but it dinged their actual credit.
Now, last but not least, there's other things like listing bankruptcies, civil judgments. This is some... Say in the civil court, you owe someone money. Tax liens, this is, let's say you owe money to the government, you haven't paid it yet. They might take a lien on something that you own, which means they have a stake on it.
So if you ever sell it, the government has to get their money first. It lists things like soft inquiries and then later hard inquiries, which we already talked about. So that is a general gist of how to look at a credit report. The bottom line is don't over-utilize your credit.
Pay things off in time. Be careful about too many hard inquiries, and over time your credit score should get to a decent place.
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