Credit Score

Credit scores are like report cards for adults, and a “failing” score can have a huge impact on your life. Everything from buying a house to applying for certain jobs can be affected by your credit. In addition, an excellent score can help you obtain the best interest rates and save thousands in interest payments.

The path to a good credit score, however, isn’t always clear. It can be confusing to understand how it’s calculated, and what it would take to improve it. Here are 4 tips to help you achieve a rocking credit score!

Understand How Your Score is Calculated

Your FICO score, which is the score most likely to be used when you apply for a loan, is determined by 5 different factors, as the below chart illustrates:

Credit Utilization: 30%
Payment History: 35%
Credit History: 15%
New Credit: 10%
Credit Mix: 10%

Payment history is the most important factor affecting your score. It is crucial that you make payments on time. Credit utilization looks at how much of your available credit you use.  The closer you are to maxing out a credit card the more your score will be negatively affected.  Credit history is determined by how long each of your accounts have been open; the longer the better.

The new credit portion of your score is affected by how many loans or credit lines you apply for in a short amount of time, usually 2 years. Lastly, credit mix looks at the different types of loans and credit accounts you are paying. It is typically good for your credit score if you have a mix of installment loans (car payments, mortgage payments) and revolving credit accounts (credit cards).

Know What Score is Considered Good / Bad / Excellent

FICO scores range from 300 to 850. The chart below can give you an idea of how lenders typically view scores.  Keep in mind, however, that this can vary from lender to lender.  It’s important to shop around when you are applying for a loan.  You can often check your own score, and speak to a lender about how your credit will be viewed before officially applying for a loan.

800 plus = Excellent*
740 to 799 = Very Good
670 to 739 = Good
580 to 669 = Fair
579 and lower = Poor

Check Your Own Credit Score & Report

You can’t take steps to improve your credit if you don’t know where you stand. It will NOT hurt your score if you check it yourself. There are 2 different types of credit checks known as hard vs. soft.  A hard credit check takes place when you apply for a loan or credit account, and it can slightly ding your score.  A soft credit check, however, does not affect your score, and checking your own score is considered a soft check.

There are a couple different ways to check your credit score. Some banks and credit card companies are starting to provide credit scores to their customers for free. You may be able to find your score by accessing your account online or reviewing your monthly statement.  Check with your bank or credit card company.  There are also websites who provide free scores such as  You can also go to to purchase your score directly from the credit reporting agencies.

In addition to checking your credit score, you are entitled to a free copy of your credit report from each of the 3 credit reporting agencies each year. Your credit report provides you with in-depth details of your credit history, and it is important to regularly review it for any errors.  You can go to to order your free reports.

Know the 1 Step that Can Improve Your Credit Score Quickly

When we discussed the 5 factors that determine your credit score above, most of the points we discussed require time, consistency, and patience. For example, if you make a late payment (typically 30 days or more), it will lower your score sometimes drastically and can stay on your credit report for 7 years.  Though, your score will be affected less and less as time passes.

There is one step you can take that can help raise your score quickly. Keep your credit card balances at less than 30% of your available credit. That means that if you have a credit card with a $10,000 limit, keep your balance at no more than $3,000.

I know it can take time to pay down a large balance. If your interest rate is high, and you have money in savings, consider paying off your credit card debt. Even if you devote an extra $50 to $100 a month to paying down your credit card balances, the payoff can be huge.  You’ll save hundreds in interest payments, and the lower your balance goes the more your score will improve.

The road to a great credit score can be bumpy and long. There may be times when the most you can do is pay on time and wait for your score to improve.  Don’t give up, make a plan to pay off debt, and be consistent with your payments.  The payoff will be worth it.