Your Credit Score
This Expert Adulting Module Will:
Help you understand how many ways your Credit Score affects you every day
Potentially save you thousands of dollars
Explain how your daily actions cause your Credit Score to go up or down
A Higher Credit Score = More Money in YOUR Pocket
Most Important Things To Understand
Managing your Credit Score is probably the most important thing you can do to improve your financial life.
Why? Because people with LOWER Credit Scores consistently get charged higher interest rates and higher fees than people with higher Credit Scores. When you spend money to buy something, you get something you want. When you spend money to pay interest or fees, you get nothing except less money in your pocket.
Your Credit Score COSTS you – or SAVES you – thousands ($) and thousands ($$) and thousands ($$$) of dollars throughout your life and it does it whether you know about it or not.
You can change your Credit Score.
Jump To A Specific Topic
Questions For You to Answer
(see info below for how)
What is my Credit Score?
Is my Credit Score correct?
(If it is based on incorrect information in your Credit Reports you may be being charged more money than you should.)
Am I willing to make it better?
Why Do I Care What My Credit Score is?
BAD NEWS: It’s a spiral.
If you have a LOW Credit Score (and don’t choose to improve it), you will pay more fees, be charged higher prices, be charged more interest and be required to put down larger down payments resulting in your financial life getting worse and worse (downward spiral).
GOOD NEWS: It’s a spiral!
When You IMPROVE your Credit Score, the spiral starts going the opposite way – you pay less every day so you have more money in your pocket to do with what you want!
Your Credit Score matters as much to your financial future as your employment and income do.
How Lower Credit Scores Can Affect You Daily
Sadly, the lower your Credit Score, the more you will pay in many areas of adulting life such as:
Car Insurance: Drivers with poor credit can pay 2x as much for car insurance as those with exceptional credit.
Credit Card Interest Payments: People with lower Credit Scores get charged a higher Annual Percentage Rate (APR) on any balance they leave on their credit card each month. For example, someone with a Discover Card could be charged anywhere between 11.99% and 22.99% APR based on their “credit worthiness”. (2022) So, to translate, someone with a poor credit score could pay 2x as much in interest (22% vs 11%) than someone with a high credit score from the same credit card issuer and for the same credit card balance. Seeing a trend here???
Loans: The lower your Credit Score, the more interest you will have to pay each month and over the length of the loan for credit cards, car loans, mortgages, etc. – assuming you can get them at all. (Money you pay in interest gives you nothing in return.)
Cell Phone: Cell phone companies may require a prepaid or month-to-month plan (if they approve a plan at all) which are normally more expensive.
Internet / Utilities: Upfront cash deposits are usually required from lower Credit Score customers when setting up utility services (electric, gas, internet). People with exceptional Credit Scores don’t normally have to make these deposits.
Rent: If you qualify to rent an apartment or house, you will most likely have to pay a higher security deposit and may have to prepay several months’ rent if you have a lower Credit Score.
A Real-Life Story
I am friends with a 22-year-old woman, Jessica, who is a successful specialty food store manager. She has risen quickly through the store ranks and is now making good money. Being 22, she was anxious and excited to move out on her own.
Jessica created her Spending Plan (budget) and determined that she could afford to pay $1000 / mo. on rent for her first apartment. Knowing what she could afford, she went looking and found an apartment in an exciting part of town that she loved and it cost just $940 / mo. – she was thrilled!
She filled out her rental application and submitted it with the $50 application fee. She then went home and started packing to move.
When Jessica didn’t hear back from the apartment complex after a couple of days, she called to follow up and LEARNED THAT SHE HAD BEEN TURNED DOWN! ☹ ☹ ☹ ☹
When she asked them why, she learned that even though she met all their income requirements, her Credit Score was too low to qualify. She was heartbroken.
Upon investigation she learned that her Credit Score was just “Fair” because she unknowingly missed ONE student loan payment from the one semester she had gone to college. (She worked with the student loan department to get it taken care of after this incident.)
Because Jessica hadn’t checked her Credit Score before applying:
She lost her dream apartment
She lost the $50 application fee
Her Credit Score was actually LOWERED because the apartment complex had submitted the inquiry about her
She took 3 blows that could have been prevented if she’d known the information in this module!
What is a Credit Score?
Your Credit Score is an attempt to objectively measure how financially responsible you are. It’s used by companies to help make better, and potentially less discriminatory, decisions about who to give credit to and with what terms.
Your Credit Score is like your grade (remember report cards?) for how well you’ve handled your debt / credit / loans in the past.
It changes each time you apply for a new financial obligation (rent, car loan, credit card) or use any credit sources you already have (e.g., make a payment on a car loan, use or pay off your current credit card).
You will have a Credit Score starting within 6 months of when you get your first school loan or credit card or other source of credit and are at least 18 years old.
You actually have multiple Credit Scores and each potential lender could use any of them. All your scores will be based on the information in your Credit Reports so, as long as that information is correct, your scores should be pretty similar regardless of their source. FICO is the most widely known credit scoring system.
Who Evaluates Me Based on My Credit Score?
Almost every company entering into an ongoing financial relationship with you will look at your Credit Score as part of their evaluation of your qualifications. Nowadays, even potential employers use it as a way to help judge a job candidate’s reliability and responsibility.
Utility companies (electric, gas, internet)
Credit card companies
Vehicle loan sources
Insurance companies (car, renter’s, homeowner’s)
Stores that finance their customer’s purchases (e.g., 90 days same-as-cash offers)
Cell phone companies
How Can I Find MY Credit Score?
Note: if you’ve never had any form of credit (e.g., credit card, student loan, car loan, etc.), you will not have a Credit Score (see “What If I Don’t Have a Credit Score?” below).
Here are a few ways you can get your Credit Score without having to pay anything:
Many credit card companies and banks are making their members’ Credit Scores available to them periodically for free. Check these sources first.
If #1 doesn’t apply, search the internet using the phrase “free credit score”. There are several companies that offer this service - read the information from several different companies FIRST and then choose the one that’s best for you. (Researching & comparing is a big part of being a financially successful adult.)
CAUTION: Read the details of their offer!
These companies exist to make money off you and are just offering the free Credit Score to lure you in. Take the free offer and nothing more. There should be no need to enter any kind of payment information to get the free offer. Example: some of these sites offer 1 credit check PER MONTH and charge for any additional checks. Your Credit Score will not change a lot within a month so 1x a month is fine even if you are working on making your score better.
What is a “Good” Score?
This is how a couple of the most popular credit scoring companies break down the categories:
Very Good / Excellent
FICO 8 & 9 Ranges
VantageScore 3.0 Ranges
What Brings My Credit Score Down?
Some examples of what will lower your Credit Score:
🙁 Late or missing payments (credit card, school loan, car loan, mortgage, etc.)
🙁 Having a high amount of debt
🙁 Bankruptcies, evictions, etc.
🙁 Each time you apply for a new ongoing payment and a company pulls your credit report to see what kind of credit risk you are (called a “hard inquiry”) will lower your Credit Score at least temporarily – even if your application is turned down!
CAUTION: By submitting multiple applications (e.g., to multiple potential landlords, car loan companies, or credit card companies when you are “shopping” for a new one) you are actually driving your Credit Score down and making it less likely you will be approved with each application submitted. (Try to keep your applications to a minimum – ideally just applying to the one you want & have made sure you are qualified for!)
MONEY SAVING TIP: Before you submit any kind of financial application: ASK what the company’s approval criteria are (ideally by phone call or in-person) and compare that to your Credit Score and situation BEFORE you submit any application.
If You Don’t Qualify, Don’t Apply!
To be sure you get the correct information and not someone’s guess, make sure the company representative you talk with is directly involved with the approval of applications!
What Can I Do to Improve My Score?
Those same websites that offer free Credit Scores offer a lot of good information about this (see above section "How Can I Find MY Credit Score?"). Read the information from several different sites and you will get a pretty good understanding. Examples of some of the best ways:
✔ Make sure ALL 3 of your Credit Reports are correct (see Credit Reports)
✔ Make sure that EVERY bill gets paid ON TIME (at least the minimum payment)
✔ Get recognized for making utility payments (a relatively new method offered by Experian)
✔ Become an authorized user on the credit card of someone with a high Credit Score (Mom or Dad possibly?). This will help even if they don’t actually give you the credit card!
✔ Only apply for credit you are sure you qualify for (find out before you apply!)
✔ Keep the number of applications you submit as low as possible
MONEY SAVING TIP: You can improve your Credit Score on your own – you do NOT need to pay companies to help you. Follow the advice you find on trustworthy websites and, instead of using your money to pay a company to help you, you can use that money in ways that will start improving your Credit Score immediately.
What if I Don’t Have a Credit Score?
If you’ve never had any kind of credit then you will not have a Credit Score.
Not having a Credit Score poses its own challenges. Some companies will not even consider working with someone without a credit history. Some companies will be willing to work with you but they are likely to require you to provide other forms of assurance that they will get paid e.g., a large down payment, prepayment of several months of rent, a co-signor, letters from references, etc.
What To Do Now
Find your own answers to the Questions for You to Answer.
Review the Most Important Things to Understand.
Always make sure your Credit Score meets the creditor’s qualification requirements BEFORE you apply.
Think about your Credit Score when you make financial decisions from now on. Will your decision help your Credit Score (and thus your financial future) or hurt it?
Can you think of anyone who might want to know this? If so, please share!
Learn More (My Sources)
Impact of Credit Scores on Car Insurance Rates
https://www.thezebra.com/resources/research/credit-impact-car-insurance-by-state (updated 3/6/2021)
Loan Calculator by Credit Score
Side Effects of Bad Credit
Improve Your Credit Score
Basic Credit Score & Credit Range Information