Sense & Centsibility Blog

Credit Scores: What You Need to Know

Credit is used in decisions regarding eligibility for loans, the cost of insurance premiums, and even employment and rental applications. A credit score is based on factors from your credit report at the time the score is requested. Generally better credit terms, such as interest rates, are offered to people with higher credit scores. The higher the score, the better the terms. So what's in a score and what can you do to improve your credit score? We've got answers and tips for you:

What's in a credit score? The FICO score was created by Fair Isaac Corporation and it's the most common credit scoring system. FICO scores range from 300 to 850. The higher your score, the better.  An ideal score is at least 700. A lower score may result in paying more for the cost of credit and services, like insurance or loan interest rates.  So it's important to know what your credit score is, what factors affect it, and ways to improve your score/maintain a good score. Here's the break down on credit scores:

  • 35% Payment History: whether or not you make minimum payments on time
  • 30% Debt Balances: combined total debt owed, outstanding balance compared to credit limit
  • 15% Length of Time: when an account was opened and when it was last used
  • 10% New Credit: number of inquiries, time since credit inquiry, new credit opened
  • 10% Credit Type: mix of credit used, such as installment debt, revolving debt, consumer finance accounts

How to improve or maintain your credit score

  • Pay bills on time and/or before the due dates with at least minimum payments. Pay more when you can to decrease balances faster.

  • Keep your debt balances below 30% of the credit limits. For example, if you have a $1000 credit limit then keep the amount owed at $300 or less.

  • Apply for and open new credit accounts and services only as needed. Note: if you open or close a bunch of accounts in a short period of time, this can negatively affect your credit score.

  • Know what is being reported and request your credit reports annually from Experian, Equifax, and Transunion through or call (877) 322-8228. Credit reports are free once a year, but expect to pay a small fee for each score requested. If you don't need your score, make sure you choose the right option to get your report only.
  • Check your credit report for errors and make corrections. Also, make sure you remove outdated, negative information. If you have collection debt, read this post about how to pay collection debt to clean up your credit report.

Improving your credit score is not instant; it takes time, but it can be done. If you would like a free credit report review, call LSS Financial Counseling at 888.577.2227. We're here to help!