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Everything You Need to Know About Your Credit Score

Posted by on Dec. 31, 2014 at 12:00 AM
  • 19 Replies
1 mom liked this


If you are an adult and you are reading this, you almost certainly have a credit score. While it is possible to not have one (if you have never financed anything), most of us started building a credit history when we got our first credit card or car loan.

For a number of years I've taught financial literacy classes at the college level and one thing I've noticed that a lot of my students are confused about the basics of credit scores. So, below, here is a primer on the top ten things you should know about credit scores:

1. What is a credit score? A credit score is basically a mathematical representation of someone's creditworthiness. The higher the score, the more you have demonstrated that you are a trustworthy borrower. The lower the score, the more likely it is that you are going to be late with payments or go into default, based on your past behavior.

2. Why does my credit score matter? Your credit score will determine the cost of borrowing future money. Say two people are buying cars. One has an excellent credit score, one has a low credit score. If they buy the same model of car but one ends up with a 1% interest rate on their loan and the other is at 13%, they will have very different monthly payments.

3. What else does my credit score effect? For some people, their credit score might impact their ability to get a job. Some companies will run credit checks on applicants for positions that involve handling cash or managing a budget as it is thought that those with lower credit scores may be higher risk employees.

4. Who determines my credit score? Your FICO score (the most widely used score) is generally determined by three main agencies: Equifax, Experian, and TransUnion. Each has a slightly different formula so your credit score is actually a range of three scores.

5. How is my score determined? There are several factors that determine you score including: length of credit history (the longer, the better), the number of credit accounts, the credit to debt ratio on accounts, your payment history (on-time, late or default), and any negative events like bankruptcy or foreclosure are part of your score.

6. What isn't in my credit score? Your income, your bank account/savings level, your race and national origin, and your age are NOT part of your score. Also not generally not counted is timely payment of rent.

7. What is a "good" credit score? The range for credit scores is 300-850 and any scores over 720 are generally considered "good" while over 750 moves you into the "excellent" range and should qualify someone for the best interest rates.

8. What is the average credit score? The average credit score in the US is about 689 (as of October 2012). The state with the highest average credit score is North Dakota and the lowest average score is Texas.

9. How do I improve my score? There are several things you can do to improve your score but there are no "quick fixes" if you've hade credit troubles in the past. You'll need to give yourself time to see your score improve. The most important thing to do is to make sure you pay all your bills on time, month after month. You'll also want to make sure you keep your credit card balances low so your debt to credit ratio is below 30%. You should avoid opening new accounts unless absolutely needed and focus on paying off debt rather than moving it around. Finally, double check your credit report (use www.annnualcreditreport.com for a free credit report) to make sure there aren't any errors that could be bringing your score down.

10. If I don't have a credit score, do I really need one? Theoretically, no, you don't need one as long as you never plan to borrow money or finance anything. It is, of course, possible to live a cash only life but many people would find it difficult to save long enough for big ticket items like cars and homes.


If you don't already know your credit score, I would encourage you to find out so you know where you stand.

Do you feel good about your credit score and understanding of how credit scores work?


by on Dec. 31, 2014 at 12:00 AM
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Replies (1-10):
michiganmom116
by on Dec. 31, 2014 at 7:29 AM
1 mom liked this

I don't know about other states, but here in Michigan credit score also affects auto insurance rates.  The lower the credit score, the higher the rate.  Buncha BS.

michiganmom116
by on Dec. 31, 2014 at 7:31 AM

I'm pretty comfortable with my credit score, and I do understand how they work.

TheJerseyGirl
by Silver Member on Dec. 31, 2014 at 8:34 AM

 Our credit score is excellent but we try hard to keep it that way.

johnny4ever
by on Dec. 31, 2014 at 9:26 AM

Which company is the best for Credit Scores?

cookiecounter
by New Member on Dec. 31, 2014 at 9:30 AM
I have an excellent credit score. I have worked my butt off to get it to where it is. I was not responsible as a young adult and at one point my score was at a 525. I learned a very expensive lesson.
SarahSuzyQ
by Bronze Member on Dec. 31, 2014 at 10:25 AM
DH and I both have excellent credit scores, and we're intentional about keeping a good credit history.
TigerofMu
by Silver Member on Dec. 31, 2014 at 10:31 AM

I have some understanding.  I did think that items would roll off eventually, and that hasn't seemed to happen.  There was an item I disputed because it wasn't even mine, and not only will they not take it off, it hasn't rolled off, even though it's been 8 years.

MistressMinerva
by on Dec. 31, 2014 at 1:53 PM

Our credit score is pretty high and we keep it that way.

LaniBee
by on Dec. 31, 2014 at 2:11 PM

I understand how it works. I should probably check in on all this stuff for the new year.

la_bella_vita
by on Dec. 31, 2014 at 2:19 PM

Yes, I know my credit score and I try to keep an eye on it

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