Cracking Your Credit Score

credit score

Cracking Your Credit Score

This month, we are focusing on “back to the basics” with mastering your money. In the last few weeks, we’ve talked about getting out of debt and answered some frequently asked questions from readers. Today, I want to talk to you about your credit score.

First, why is your credit score important? Your credit score basically determines your buying power. If you want to get a credit card, buy a car, and especially buy a house, your credit score is checked! Any time you’re getting a loan, the bank needs to know you will pay it back. Here’s how your credit score is calculated and some tips to increase your score!

Credit Scores: Why They’re Important and How to Improve Them

The Numbers

When looking at your credit score, it’s important to know what the numbers mean.

0-500: Needs Work

620: Danger!

680: Good

720: Outstanding!

850: Highest

What Determines Your Credit Score?

Your credit score is composed of 5 determining factors: Payment History, Outstanding Credit Balances, Length of Credit History, Type of Credit, and Credit Inquiries.

Payment History. Payment history is of very high importance as it accounts for 35% of your overall score. This category scores things such as if you pay your bills on time, bankruptcy, or repossession of assets.

Outstanding Credit Balance. Followed closely is your outstanding credit balance, which holds 30% of your score. While it is important to have little debt, it is more important that you are making at least the minimum payment every month. If you do have a credit card, I recommend paying off all but $10 every month to help with your credit score.

Length of Credit History. Over time, credit can improve with the Length of Credit History element, which accounts for 15%. Again, credit scores are all about determining if you are reliable to pay off your loans. The longer credit history you have, the more trustworthy you are. This can hurt young people, but it only compromises 15% of your score.

Type of Credit. This comprises 10% of your score. There are three types of credit: revolving, installment, and open. Revolving credit is like that of a credit card: a line of credit you can keep borrowing from but there is a limit. Installment loans involve fixed, recurring payments like car loans. Open credit is much less common. They involve accounts that you can borrow from with a maximum limit but must be paid in full each month.

Credit Inquiries. The final 10% of your credit score is made up by credit inquiries. Each time a company looks you up, it can take a hit. Now, this only weighs 10% of your overall score so it won’t be detrimental if it’s a once in a while thing, but don’t go car shopping every weekend!

What if There’s a Mistake?

If you see a mistake, it is imperative to resolve it quickly for the sake of your score. Unfortunately, about 79% of all credit reports contain mistakes of some kind. Furthermore, 25% of credit reports contain errors that result in credit denial. You should also frequently inspect your report for personal information, making sure what is listed is current & accurate. Another important aspect to note in your report is the accuracy of your closed & open accounts. As many as 30% of reports incorrectly list closed accounts as open, which can negatively impact your score.

To view your credit report & score, pay for a copy from each of the following agencies. Most of the free reports do not include your credit score. Remember, lenders will use your middle score from each of the reporting agencies. You can download the reports from Experian, TransUnion & Equifax. Monitor them closely & file any disputes promptly. If you work on improving the health of your credit score, you will benefit by receiving lower interest rates for future projects.


Did you learn something new from this post? If so, send it to a friend! My book, Money Mastery, could also be a great resource for you, so I recommend you pick up a copy!

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Billy Epperhart
Billy Epperhart
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