The Credit Score Mambo – Part 1

what's my credit score?

Credit scores get all the buzz. You want to know what your score is, who looks at it, how to improve or maintain it, and how a low score can impact your financial life or even career. The credit score and its almighty but less popular big brother, the credit report, are how lenders, landlords and even employers can make judgements about your ability to pay back borrowed funds, make on-time payments and even if you’re responsible. Think of these two like your college GPA and transcript for the real world – which is why it’s important you know exactly how to decode what they mean, how to make improvements and how you stack up.

Credit Report Versus Credit Score

Your credit report is the record of all your interactions with credit, both good and bad. It’s where applications for lines of credit are recorded, if you pay your bills on time, how long you’ve had credit and if anything has gone to collections. This report is what informs your credit score. The report is collected by the three credit bureaus: Experian, TransUnion and Equifax.

The credit score though makes it simple to quickly understand how exactly you handle credit. The higher the score, the better you’ve been with handling your debts.

Why You Should Care About Your Credit Score

Your credit score matters because it impacts so many parts of your life. The most obvious being that your credit score is used when you need to apply for a loan or credit card. Mortgages, personal loans, student loans, auto loans and refinancing lenders all check credit reports and scores. A higher credit score usually correlates to paying a lower interest rate, which can save you a significant amount of money over the life of a loan.

However, these aren’t the only times your credit report and score will be monitored.

Want to rent an apartment? Your landlord is probably going to do a credit check.
Looking for a new job? Your future employer might pull your credit report.

Your credit report and score are both a reflection of how well you handle your financial obligations, which makes it a good indicator to a landlord or employer if you’re going to pay rent on time or be able to handle a corporate card appropriately.

What’s In My Credit Score?

Your credit score is based on five factors:

  • Payment history – 35%
  • Amounts owed (utilization) – 30%
  • Length of credit history – 15%
  • New credit – 10%
  • Credit mix – 10%

Payment history and utilization make up such a large portion that missing a payment or maxing out a credit card can make a score drop significantly in a quick period of time. It could even be 100 or more points for missing a payment. Experts often suggest you use no more than 30% of your total available credit limit at any given time, but the lower the better. In my personal experience, single digit percentage utilization then paying the bill on time and in full helps you keep a high 700 credit score and even tip into the 800 range.

Utilization is calculated as a percentage of your total available credit limit. Let’s say you have a $10,000 credit limit and you use $2,000, then your utilization is 20%. Maxing out cards, even if you can pay them off in full, sends warning signs to lenders that you’re more likely to default in the future. This is why it’s ideal to keep your utilization 30% or less.

Smaller dings like applying for a new credit card and therefore having a hard inquiry on your credit report usually only results in about a 10 -point drop in your score, which can quickly be rebounded with proper utilization and on-time payment history.

What’s Not In My Credit Score?

The uber-wealthy can have terrible credit scores and a woman earning $16,000 a year could have a stellar score. Your net worth and salary have absolutely no bearing on your score, unless of course it means you aren’t paying your bills on time.

Your race, religion, color, national origin, marital status, gender, age, and items reported as child or family support obligations also don’t factor into the FICO credit score.

What Is A Good Credit Score?

There are a myriad of credit scoring models on the market today. FICO is the mothership of credit scoring and the most commonly used score by lenders. However, even FICO has multiple models. Frankly, credit scoring is a bit of the Coca-Cola formula of the financial world. You know some of the basics, but the entire secret sauce (or algorithm in this case) isn’t getting divulged.

For the sake of this article, we’re going to focus on the traditional FICO credit scoring model, which ranges from 300 to 850.

Your goal is to be a member of the “700 Club” meaning you have a credit score in the 700s. Making into the 800s is a coveted feat and hitting that 850 mark is about as likely to happen to most people as being on a winning Super Bowl team. Not your team winning the Super Bowl. You being on the actual team.

You can certainly strive for hitting 850, but landing in the high 700s to low-800s makes you in the top tier of American credit scores. 19.9% of Americans scored an 800 or higher credit score in 2015 and 34.8% were in the 700 – 799 range, according to FICO. The average FICO score in 2015 was 695. Once you’re into the 780 or higher range, most credit experts will say it doesn’t make much difference because lenders tend to view that as excellent credit and give you the lowest interest rate.

What’s A Terrible Credit Score?

A credit score under 600 is going to make really difficult for you to be eligible for any reputable financial products. Credit cards are likely to be riddled with fees and loans usually come with steep interest rates and origination fees.

Common ways you may still have a low (or non-existent) credit score include:

  • No line of credit in your name – not even a credit card
  • High utilization on your line(s) of credit
  • Bills sent to collections
  • Missing payments
  • Being delinquent or in default on your student loans

How Do I Access My Credit Report And Credit Score?

The credit report is easy to access for free because the federal government mandates that you are legally allowed access to one free copy of your credit report from each of the three bureaus once per year. Pulling your own credit report never hurts your credit score, so don’t be afraid to check it out. However, if you decide to check it more than the one granted pass per year, then you’ll likely need to pay in order to gain access to the official reports. You can view all three at once or you can space them out over the course of the year. You can file a request and download your report by visiting

Your credit score is a slightly different story. Historically, you could only gain access to your FICO credit score by purchasing access directly from FICO. Other tools like Credit Karma, Quizzle and Credit Sesame gave you access to what’s be affectionately coined a “FAKO” score. FAKO really refers to all other scoring models such as the VantageScore. It’s still a legitimate score, but weighed and evaluated a little different than FICO. It’s a close approximation, but not your official FICO score. Today, many credit cards offer access to your FICO credit score on your monthly statement and Discover, as in the credit card company and bank, recently launched a free Credit Scorecard. The Credit Scorecard provides access to your real FICO score, even if you aren’t a Discover customer. Personally, I check my monthly credit card statements for access to my FICO credit score.

Keeping tabs of your credit score is not only good for your financial health, but it’s a simple way to monitor for identity theft. A sudden drop in your score, especially of more than about 5 or 10 points, can be an indicator that someone else is applying for credit in your name. It’s helpful to check in on your score once a month, which can easily be done if you have a credit card offering access to your FICO score. You should also make note on your calendar to pull a free credit report every 4 months and check for any discrepancies there. With it not only being easy, but also free, you really have no excuse to avoid tracking your credit health.

Check out Credit Score Mambo Part 2 where we discuss credit scores and their impact on relationships.

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Erin Lowry is the founder of Broke Millennial, where she uses sarcasm and humor to explain basic financial concepts to her fellow millennials. Outside of oversharing on her site, Lowry’s musings have also appeared in New York Magazine, U.S. News and World Report, Business Insider and Thought Catalog.

Haven Term is a Term Life Insurance Policy (DTC 042017 [OK1] and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. Policy and rider form numbers and features may vary by state and may not be available in all states. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Our Agency license number in California is OK71922 and in Arkansas, 100139527.

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