featured image via Müjgan Afra Özceylan

Editor’s Note: Today’s post is authored by Erica Holland. In addition to her full-time role at a private equity firm, Erica runs a personal finance and lifestyle blog, ModMoney, where she simplifies personal finance in a relatable way, and dives into important “real world” topics seldom taught in school.

Most of us have swiped a credit card, paid a mortgage, or applied for a personal loan. Which also means we have a credit score that reflects how well we’ve managed it all. Monitoring your credit score may not be the most glamorous task, but it’s an important one because a lot is at stake. Your credit score can impact loan approvals, interest rates, insurance premiums, and even your next job! Here are some key things you need to know.

photo from free people

1. Your credit score comes from your credit report.

Every time you borrow or repay money, your activity is reported to the three big credit bureaus: Experian, Equifax, and TransUnion. Each bureau puts together a report that documents your credit history, and that’s where your score comes from. You can pull these reports for free once a year by going to AnnualCreditReport.com. It’s important to check these so you can catch any errors and detect fraud.

photo from urban outfitters

2. You have more than one credit score.

There are a variety of credit scores out there, but FICO is the most commonly used among lenders. However, even your FICO score can differ depending on when it was pulled and which of the three credit bureaus it came from. In any case, most scores are based on the same formula with a scale of 300-850, so they should only vary slightly. Anything over 670 is considered good, over 740 is very good, and over 800 is exceptional.

photo from free people

3. There are five factors that determine your credit score.

Knowing how your score is calculated can help you isolate what you need to work on to improve it. In order of importance, your score is based on:

  1. 35% – Payment history: This one is pretty simple. It reflects your track record of making on-time payments.
  2. 30% – Utilization: This is the amount you owe as a percentage of your total credit limit. The ideal ratio is around 20%.
  3. 15% – Length of credit history: A longer history is better because it gives lenders more insight into your behavior. If you just started developing a credit history, it may be hard to get a score in the 800s right away.
  4. 10% – New credit inquiries: Each time you apply for a new card or loan, the issuer makes an inquiry into your credit history, which dings your score by a few points.
  5. 10% – Types of credit: Lenders like to see that you can manage a mix of retail accounts, credit cards, mortgages, and other personal loans. If you don’t have a broad mix of credit, no biggie. It’s the least important factor.

I spoke about these factors and how you can improve them in The Ultimate Guide to Understanding Your Credit Score. And if you ever wondered how you can responsibly use a credit card to build up your credit score, check out 5 Credit Card Rules You Should Definitely Be Following.

photo from free people

4. Your score can impact your life in a variety of ways.

Have you ever had a friend who borrowed some cash and never returned it? Chances are, you’re hesitant to lend her any additional lunch money. Similarly, prospective lenders use your credit score to evaluate your risk as a borrower. This manifests itself in several ways. First, your score dictates whether you are approved for a credit card, a mortgage, an apartment lease, a car loan, or any other personal loan. A low score can also cost you serious cash because it determines your interest rates. If lenders perceive you as a risky borrower, they charge you a higher rate to protect themselves. Plus, a low credit score also means higher insurance premiums and security deposits on your utility bills. Finally, your credit score can show up on employee background checks. Nobody wants to be rejected from their dream job because of a poor credit history!

photo from collage vintage via who what wear

5. You can monitor your score for free.

Several credit card issuers offer their cardholders a free FICO score. Additionally, technology applications have made it easy to monitor and improve your credit score. Credit Karma is one such app that provides access to your credit score and credit reports for free. Credit Karma also makes it easier to raise your score because it tells you exactly where you stand on each of the five factors. Now that your score is free and accessible, there’s no excuse not to monitor it.

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Comments (8)
  1. 1
    Jetté March 16, 2017 at 5:27 am

    I like this post and find it very informative and important for women to read, as statistically, quite a few women are not as well versed on finances as we should be. However, let’s rethink the post total, as most women stopped being “girls” after they turned 18. To be considered equal to men and capable of managing our finances, we must first consider ourselves grown WOMEN, rather than girls. It is rare for us to refer to grown men as “boys”.

    • Jetté March 16, 2017 at 5:29 am

      Meant to type “blog post’s TITLE” not “total”

  2. 2
    Mia March 16, 2017 at 11:02 am

    Thank you for addressing an important topic!

    Re: comment above: YES. Thank you, Jette. Very well said! That was the first thing I noticed too.

    Let’s stop infantilizing women as it minimizes their responsibilities and skills/talents.

  3. 3
    Camille Styles March 17, 2017 at 4:45 am

    Hey ladies, thanks for sharing your thoughts on this topic! While I consider “girl” to be simply a casual reference to females (same as “guy” for males), I hear you. I’ve updated this particular post title to be non gender-specific, especially since the subject matter is specifically meant to empower women and help them be their most independent and capable selves! 🙂

    • Nicole Schindler March 18, 2017 at 10:06 am

      I totally agree with you! @Camillestyles. If that were the case then everyone who says “girl’s night out” would be incorrect. I don’t believe we should feel like someone calling us a “girl” is infantilizing us, we are able to prove our own capabilities by our actions, not by what other people refer to us in a casual sense! Which goes perfectly with an informative post like this. Loved the post and learned a lot from it, I’m going to check out what I need to do to increase my score! (Also, who’s to say that ladies under 18 shouldn’t learn about their credit score also and prepare for their futures?)

  4. 4
    islandgirl80 March 19, 2017 at 6:56 am

    VERY informative post!! thanks!!

  5. 5
    Whitney March 21, 2017 at 1:01 pm

    I think credit is so important and we should check it regularly by signing up for a service like Experian but I do want to say that Credit Karma is not your true score. I had been checking Credit Karma for a few months but went to apply for a car loan to find out that my credit was over 30 points higher than what Credit Karma was reporting.

    • Erica Holland March 22, 2017 at 8:26 am

      Hi Whitney! It makes sense that the score Credit Karma showed you was different from the score your auto lender pulled. There are multiple types of credit scores – Credit Karma shows you your VantageScore, and your auto lender probably pulled your FICO. If you don’t have a credit card that offers 24/7 access to your FICO score or you don’t want to pay for it, I think Credit Karma is a useful tool to directionally track your score over time as you try to improve it. But I totally agree – if you want to see your true FICO score at any given point in time, an Experian subscription is a good option, and not too expensive.



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