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Give Yourself Some Credit Thumbnail

Give Yourself Some Credit

In her groundbreaking research on UDD (Unhappy Debt Disorder), Dr. Shari Reiches has clearly established the link between paying attention to your debt and reducing UDD.  Her final research piece looks at a crucial component of that attention – your credit score.

What is a credit score?

A credit score is a three-digit number that assesses the likelihood that you will pay your bills on time. Credit scores are used by the three main credit bureaus, Equifax, Experian, and TransUnion, calculated from information contained in your credit report.

The higher your score, the more access you may have to credit products—at lower interest rates.  A lower credit score may not keep you from being approved for credit, buy you it's possible you will have to pay a higher interest rate. Landlords often look at your score to decide if they want you as a tenant.

Credit scores are not the only metric used in making lending decisions. Lenders may also look at your debts relative to your income to evaluate if you have room in your budget to repay loans.

How do I see my credit score?

Most credit card issuers provide free credit score access to their cardholders on their websites. There will typically be a dashboard listing your score and the factors that influence it.  Your credit report (available at annualcreditreport.com) does not list your credit score.

What factors influence a credit score?

FICO® and VantageScore credit scores are used widely by credit reporting companies.  Here’s what goes into your FICO® score:

  • Payment history (35%) – your record of paying on time.  
  • Utilization rate (30%) - total amount of credit and loans compared to your total credit limit. Using more than 30% of your available credit is a viewed as a negative.
  • Length of credit history (15%) – how long you have had credit.
  • New credit (10%) – how often you apply for and open new accounts.
  • Credit mix (10%) – the variety of types of credit you have (car loans, mortgages, credit cards, etc.)  The more diverse your mix of credit – the higher the score.                                                                                                                                                                                                                                                   

What’s a good credit score?

Here are general guidelines for FICO® and VantageScore credit scores1:

FICO® VantageScore
Exceptional / Excellent 800 - 850 781 - 850
Very Good 740 - 799
Good 670 - 739 661 - 780
Fair 580 - 669 601 - 660
500 - 600
Very Poor 300 - 579
300 - 499

How can I improve my credit score?

  • Pay your bills on time.  Setting up auto payments from your checking account is a great way to make sure you don’t forget to make a monthly payment.
  • Pay down your debt.  Lowering your outstanding balances relative to your credit available is one of the quickest ways to increase a credit score.
  • Make any outstanding payments.  Bringing accounts and payments up to date by making past due payments is important.  The later the payment is outstanding, the larger the impact on your score.
  • Dispute inaccurate information on your credit report. If you believe there is an error, contact the credit reporting company, in writing, and explain what information you think is not accurate.
  • Limit the number of new credit requests.   A "hard" inquiry generally occurs when you authorize a lender to check your credit when making a lending decision. Numerous hard inquiries in a short period could cause lenders and credit card issuers to consider you higher-risk.                                                                                                                                                                                                                                               

Thanks to Dr. Shari's research, Unhappy Debt Disorder (UDD) now can be controlled and even eliminated!  On a regular basis, pay attention to your debt, review your credit report, and check your credit score.  You'll see happy credit cards and cheerful mortgage statements.  It will bring a smile to you as well!

1. https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/

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The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only.  Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.