The first time my credit score ever really came to play for me was when I was buying my first car before college. At the time, my knowledge of credit scores was extremely minimal. I could sing the entire jingle from the freecreditreport.com commercial, but I couldn’t tell you what a credit score was, how it was calculated, or why it was so important.


Nowadays when I have questions about credit or what gets factored into a credit score, I direct them to my friend, Patricia. She’s a credit consultant and explains to me what this mysterious number really means. (See how this whole networking thing has its perks?) Not everyone may have a Patricia though, so I thought I’d share a few credit score basics with you today.


What is a credit score?


Credit scores are like a report card on your creditworthiness. Basically, if someone were to lend you cash, your credit score represents the likelihood that the loan would be paid back on time. Credit scores are scored between 300 and 850. The higher the number, the less of a credit risk you are (AKA higher is better).


What are some of the factors that contribute to my credit score?


  • Your payment history – have you paid at least the minimum payment on that mastercard bill every month? What’s the progress on your student loan?
  • How much debt you owe compared to the amount of debt available. For example, what is your credit card balance compared to the maximum the credit card company will let you charge?
  • The length of your credit history – aka, how long have you been playing the ‘credit’ game?
  • Types of credit you use (see below).


Why does my credit score matter?


Whenever you are applying for new credit (opening a new credit card, new car loan, mortgage, etc.), lenders are most likely going to take your credit score into account. The higher the credit score, typically the better the terms and the rate you can get on the loan.


How do you raise your credit score?


Pay your bills on time every month. Simply put, lenders don’t want to lend money to someone who doesn’t pay their bills on time. Makes sense, right? So, put a reminder on your phone, mark it on your calendar, or stick a post-it on your mirror. Just make sure you pay your bills on time. Not only is it the responsible thing to do, but it also builds your credit.


Avoid maxing out your credit card. Generally speaking, keeping your credit card utilization low can help your credit score. Paying off your credit card balance each month is always best. If you do need to carry a balance, many experts recommend not letting your balance exceed 25-35% of your credit limit.


Check your credit score each year. If your main focus right now is to build your credit, don’t check your score every week. It takes time to improve your credit score, so be patient. However, it is recommended to check your score each year to monitor if your credit is improving. It is also good to evaluate your score to identify errors or discrepancies.


I hope that you now have a better understanding of your credit score and why it matters. And maybe you’ve also now been inspired to find the old credit score commercials on Youtube and learn the catchy jingle. I’ll take that as a win, too.


Courtesy: ATKG, LLP