Credit is as dynamic as it is impactful; here’s what to know about it.

As consumers, credit scores seem to dominate our world, but what makes up your credit score? Five key factors determine your score: 

  • How much money you owe
  • Your payment history 
  • Length of your credit history 
  • New credit you’re in the process of obtaining
  • Credit mix, or the types of credit lines that are opened under one person’s name

Now let’s look at some prevalent credit score myths. A big one I hear all too often is, “Credit scores don’t matter that much”—boy, that couldn’t be further from the truth! Think of your credit score as the most important report card of your life. It indicates your ability as an adult to manage your resources. 

Another common myth is, “You must have a high income to have a high credit score.” Again, it’s not about the amount of your resources but how well you manage your resources. Theoretically, you could have a better credit score than someone who has triple your income because your debt-to-income ratio is healthier than theirs; you may make less than them, but you also spend less than them (as a proportion of your respective income).

“Think of your credit score as the most important report card of your life.”

What about this one: “Checking your credit score makes it go down.” Also untrue—checking your credit, which I highly recommend, does not impact your score whatsoever. Lastly, let’s dispel the myth that “a low credit score stays low forever.” Fortunately for all of us, that’s not true either, as there are plenty of things you can do to improve your credit over time. So, how can you maintain or achieve a healthy score? 

1. Check your credit score regularly. Doing so enables you to see what potential creditors will see, allowing you to get ahead of potential errors, identification issues, and other things that can have a negative impact if left unchecked. 

2. Keep your credit balances low. Though it may seem counterintuitive, do not close credit cards with zero balances if you have a positive experience with that particular line of credit (e.g., you always paid on time). Manage your debt, and limit your applications for new credit cards. 

Along with a solid repayment history (i.e., you paid every monthly bill on time), those things will keep your credit score high or raise your score if it has a couple of blemishes on it at the moment. 

If you have questions about what interest rate you may qualify for based on your credit score, I can connect you with some fantastic lenders. As always, reach out to me by phone or email if you have other questions or topics you’d like to see me cover in upcoming videos. I’d love to hear from you!