Your Credit Score & What it Means to You

By Mike Long

Your credit score is a big part of your life whether you like it or not! It has a direct bearing on everything from interest rates on loans to the size of an initial deposit required to obtain a smartphone, cable service, utilities, or to rent an apartment. That being said, don’t you think it’s in your best interest to have a complete understanding of what YOU can do to improve your score? I’ll answer that one for you, it is…

Continue on for some tips and tricks to start you on your path to a better score but first, let’s get back to basics!

What is a Credit Report?

According to the Consumer Financial Protection Bureau, a credit report is defined as “a statement that has information about your credit activity and current credit situation such as loan paying history and the status of your credit accounts.” These reports contain information such as credit accounts, personal information, collection items, public records, and inquiries. The main three credit reporting agencies that generate these reports include Experian, Equifax, and Transunion.  The credit score, as we will get into next, is derived from these reports.

What is a Credit Score?

First off, let’s cover over the basics. A credit score is defined as a numerical expression based on a level analysis of a person's credit report, to represent the creditworthiness of an individual. Basically, it is a measure of your ability to repay your debts. The credit score was created by the Fair Isaac Corporation, better known as FICO. There are other credit scoring systems in place, but FICO is by far the most common, so that is the one we will be focusing on from here on out.

What I suggest doing at this point if you haven’t already, is to obtain a copy of your credit reports and scores so you can reference them as you go through this article. There are many places to get this information, the easiest in my experience being It’s free for 7 days and will give you immediate access to your 3 updated credit bureau reports. Click the banner below to access the free 7 day trial offer. Just be sure to cancel before the trial is over if you do not want to pay.

Another option is which allows you to obtain a free copy of your Equifax, Experian, and Transunion credit reports once a year. This will allow you to start the process of isolating the items on your report that may be negatively affecting your score and mitigating those items as best as possible. We will discuss that in more detail later.

The FICO score range is as follows:

Credit Score Factors

There are 5 factors that go into calculating your credit score, some being more important than others in regards to the impact they have on your score.  These factors include Payment History, Total Amounts Owed (Utilization), Length of Credit History, Credit Mix, and New Credit. Each factor comprises a different percent of your overall credit score. The percentages are as follows:

  • Payment history counts for 35% of your score and shows whether a person pays his obligations on time. This, as you can see is the MOST INFLUENTIAL factor in determining your credit score. Always make it a priority to pay at least the required minimum payments on any outstanding debts.
  • Total Amounts Owed (Utilization) counts for 30%. If you are using a lot of your available credit, this may indicate that you are over extended and banks may interpret this to mean that you are at a higher risk of defaulting.
  • Length of Credit History counts for 15% and as you may have guessed, the longer your credit history, the better the effect on your score.
  • Credit Mix counts for 10%. This mix includes credit cards, retail accounts, installment loans, mortgage loans and finance company accounts. It is not necessary to have each of these, but a healthy mix is likely to have a positive impact on your score.
  • New Credit counts for 10%. It factors in how many new accounts a person has, how many new accounts they have recently applied for and when the most recent account was opened. A new account can potentially have a negative impact on your credit score as it will lower your average account age, which can have a substantial effect especially if you don’t have a lot of other credit information.

“Real World Perspective”

To help you get an idea of how important a good credit score is, take note of the following example:

Let’s assume you have a 5 year loan. The interest rate for auto loans can range anywhere from a low of around 3undefined. To put that into perspective, the total interest paid over the life of the loan for the 3% rate would be $2,343.64, while the total interest paid for the 20% rate would be $17,688.99, a difference of $15,345.35!

If you would like a free copy of your 3 credit bureau reports and scores, visit 3FreeScoresNow for a special free 7-day trial offer:

Business Credit Monitoring

Monitor and stay informed of significant changes to your Business Credit Profile.

  • 2-Bureau Business Credit Reports & Scores
  • Business Credit Inquiries & Score Changes
  • Business Identity Fraud Restoration