• Michael Wellings

Understanding Credit Score

Updated: Apr 19, 2018


This may seem like a pretty obvious topic to write about, but you might be surprised as to how many people aren’t familiar with the importance of a credit score or how to view it. If you are one of these people, don’t be ashamed or embarrassed; you aren’t the only one. This information isn’t just for adults, if you know/have an 18-year-old or college aged guy/gal, share it with them!

Per Investopedia, a person’s credit score “is a statistical number that evaluates a consumer's creditworthiness and is based on credit history.” It is a number from 300-850, and the higher the number, the more trustworthy you appear to lenders. Basically, if you have a higher score, they trust you to pay them back for the money you borrow. Now, the range of credit scores is pretty high, so which numbers mean what? For simplicity’s sake, we’ve included this helpful graphic below to illustrate the different categories of credit score:



If you would like to check your credit score for free, we encourage you to visit sites like www.creditkarma.com, where you can not only see your score, but also get good recommendations about how to improve your score. As always though, we encourage you to come to us with questions rather than a third-party site.

Once you know your credit score, we have an idea of what you may be thinking. Okay guys, I know what my score is, and it isn’t what I want it to be. What do I do about it? Well, we’re glad you asked!

Truthfully, there’s a myriad of ways to improve your score. Before we analyze that, however, we need to evaluate how a credit score is calculated. We go into some detail in one of our previous blog articles, Are Credit Cards Evil? To sum up, there are several factors, each weighed differently. A few examples are credit utilization, payment history, delinquencies, and age of credit.

In order to get a better credit score, you need to do well in each of these measures. For example, the lower your credit utilization, the better. If you have a $2,000 credit limit, do not use $1,999 of it constantly. Obviously if you have to, you have to, but as a general rule try to not use all your credit. That being said, a significantly better score isn’t going to happen overnight. Some measures, like age of credit, take a while to really improve and make an impact on your score. The only remedy is time. Again, if improving your credit score is a significant goal to you, give us a call and we will be glad to help you map out the process for achieving that.

Alright, so now that you have a respectable score, what do you do with it? Well, that largely depends on your financial goals. If those goals involve purchasing a home, a car, or applying for other loans/credit cards, a fantastic score will help you get a lower interest rate. Lower interest rates mean less interest is paid, which should make you a happy person.

So what’s the secret to happiness? A great credit score. (Well, maybe that’s not the whole answer, but it can certainly help!) Remember, we are here to be of any help we can, and most importantly, to help make your financial life easy.

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