Credit Score (FICO) & Report

Your credit score is incredibly important and yet no one seems to understand how it works. Younger people often have no clue or care and older folks are often stuck regurgitating the wives tales of conventional credit wisdom.

Yes, one of the main reasons we want our credit score to be good is so that we can be approved for new credit cards to help us fly around the world for free. But your credit score affects much more than just your eligibility to be approved for a new credit card. Most notably your credit score will be used to determine your rates and interests when applying for loans on large purchases like home and cars. This can be the difference in paying $5,000 in extra interest or $30,000 and that’s a big deal!

There are plenty of sources online that go over this information in more detail but I’m going to give you a quick overview and debunk a few myths along the way.

How your credit score (FICO) is calculated

  1. Payment History (35%)

The biggest factor that affects your credit score is your payment history. Just a few late payments and your credit score can take a big hit. Reminder: If you’re someone who occasionally needs to carry a balance on your cards this hobby is not right for you.

  1. Amounts Owed and credit utilization (30%)

Creditors will take a look across all of your various accounts (student loans, credit cards, house payments, etc…) to measure the total amount of debt in your account. Generally speaking the lower the number the better. Secondly, they’ll look at your credit utilization, which is how much of your available credit limit you are currently utilizing. So say for instance you have 1 credit card with a $1,000 limit on it and you consistently use $750 of it per month. Regardless of if you’re paying that off every month, creditors are seeing that you are using 75% of your available credit and this may categorize you as a high-risk client. In an alternate situation if you have 3 credit cards all with a $1,000 limit but have the same monthly usage of $750 that drops your credit utilization to 25% and this is a safer client in the eyes of lenders. This is an example of how having multiple credit cards can actually be a good thing.

3. Length of Credit History (15%)

Having a long credit history shows creditors that you have managed your accounts responsibly and consistently over the years. Creditors will look at your oldest accounts, your youngest, and also take an average of all accounts to determine this. For this reason you should never close a credit card if it has no annual fee.

  1. New Credit (10%)

 This is simply a measurement of your recent credit applications. If you apply for a ton of credit cards all within a short time frame this is viewed as risky behavior and can negatively affect your score.

5. Types of Credit (10%)

I have plenty of friends who have mortgages, car payments, and student loans all in good standing but are confused when their credit score isn’t good. Having no credit can be just as bad as having poor credit. Creditors like to see a healthy balance of accounts across different types of credit. So if you’re someone who has been avoiding credit cards all together thinking it will help your credit score think again.

How can I check my Credit Score?

There are a few different ways to check your FICO credit score:

  1. Check it on free sites like – these are completely safe and great tools to use but they are providing an *estimated credit score and this is not your exact score. Although in my experience they have been proven to be quite accurate.
  2. Pay to see it using – I don’t recommend this
  3. Get a credit card that provides a FREE monthly FICO score. Some of my favorite that do this: American Express SPG Card, Citi Premier, Alaska Airlines Visa, and Many others

You can also view your credit report for free once a year from each of the 3 main credit bureaus: Equifax, Experian, and Transunion. I would suggest spreading the 3 throughout the year (one every 4 months) as a way of monitoring your credit report. Your credit report will not show your FICO score but it will show all the details and factors used to determine your FICO score therefore it is very helpful in determining the overall health of your credit.

 What Are Points 

 How to Earn Points 

 Is This Hobby For Me 

 What About The Annual Fees