Back in June, our Money Circle theme was credit scores. The conversation was so rich that I wanted to keep it going.

What is a credit score?

A credit score is a three-digit number that is calculated based on your credit report and credit history. It’s one factor that lenders use to determine your creditworthiness for a mortgage, loan, or credit card. Your score will likely be a FICO score, as the vast majority of banks and credit lenders use this model.

Why should you care?

You should care about your credit score if you care about your future. Simply, in a lender’s eyes, the higher your credit score, the lower a risk you are to them. Depending on your credit score, the lender can decide if they consider you eligible for a loan, and it can impact the interest rates on those loans. If your credit score is high, you can luck out and get a lower interest rate, which will save you hundreds, if not thousands, in the long run.

You should care about your credit score if you care about your future.

What impacts it?

There are six major factors that impact your credit score.

  1. Open credit card utilization. Say you only have one credit card with a limit of $1,000, but every month you end up spending at least $750. That means that your credit card utilization is typically at 75%. Lenders want you to keep your utilization rate at or below 30%.

  2. Percent of on-time payments. Missed payments and late payments are tracked on your credit report. Even if you’ve struggled with this in the past, if you start paying your bills on time now, it can make a difference.

  3. Number of negative marks. A negative mark on your credit report will likely hurt your ability to qualify for credit or obtain desirable interest rates. Examples of these negative marks are: bankruptcy, foreclosure, collections, or a tax lien. It can take up to 7 years for these to be removed from your credit report.

  4. Average age of open credit lines. The older a line of credit is, the better. The average age of your credit accounts is used as part of your credit score. This is why it’s important to keep your oldest accounts open, even if you don’t really use them anymore.

  5. Total number/mix of accounts. Lenders like to see several (and varying) accounts on your report because it shows that other lenders have trusted you with credit. Don’t rush to open a bunch of new credit cards, though, because this is one of the less impactful factors.

  6. Total hard credit inquiries. When a potential lender is reviewing your credit because you’ve applied for credit with them, they will do a hard inquiry. These include credit checks when you’ve applied for an auto loan, mortgage, or credit card. That’s why it’s recommended that you don’t apply for multiple credit cards over the course of a year.

    Note: Your credit score is NOT impacted when you check your own credit report or score. Nor is it impacted when companies check your score and send you annoying credit offers in the mail.

What’s the range?

If the lender you’re going to uses the FICO scoring system (and most of them will), the range is 300 to 850. The higher you are on that scale, the better your credit score is.

Wondering where the hell these numbers came from? Me too! Fair, Isaac, and Company (now FICO) made them up in 1989.

How can you improve your credit score?

Luckily, no matter how bad your credit score is right now, there are ways that you can improve it. It might take a year or two, but you can do it! Here are some ways to start:

Where can you find your credit score?

Sometimes, your bank or credit card company will offer your credit score for free or for a fee. I have seen it both ways. Two of my current credit cards display my credit score when I log into my account online. But if you don’t have that option, there are other places to turn to. Credit Karma and Credit Sesame both offer your credit score for free. They are also secure and will not share your information with anyone else. The only downside to using these free services is that they have ads for credit card deals, but you can ignore them! An upside to these companies is that they will tell you why your credit score is where it is and give you advice for how to improve it.

And remember, it does NOT harm your credit score when you check it yourself. In fact, you should be checking it every month to see how it’s doing!

Keep in mind, your credit score does not determine your self worth. We all make mistakes. We’ve all missed a credit card payment or forgot to pay that electric bill. Those things impact our credit, but don’t define us as people.

PS: Now that you know how to check your credit score for free, you should also look up your credit report. Go to to get a free copy of your credit report - each bureau is required to provide one to you every year. If you notice any errors (ie: a credit card that you know you didn’t open), you can and should contact the bureau to work on getting it removed.