Law #9: Know Your Credit Score, Track Your Credit Report, and Keep Both On Point
The Law
Good credit is a superpower. Whether you like it or not, your credit rating impacts so much of your life. Whether you get a loan for a car, get approved for a car lease, how much you pay in interest and fees, whether you get certain jobs or that fabulous apartment, whether you can get approved for a mortgage, insurance rates, and more, all depended on a 3-digit score that far too many ignore.
Credit is part of your financial power. Bad credit is power deflated; good credit, power ad infinitum. Good vs. bad credit often contributes to the chasm between the financially stable and secure and those who live paycheck-to-paycheck. Regardless of how hard it is for you to grasp—whether it comes easy or takes you months to get—do not turn your back on your credit score. Know what it is, check your reports regularly, take charge of your credit score, and shoot for scores of 700 or higher.
Your Keys to Power
Let's get this out of the way. You DON'T have to be rich to have good credit. Your credit status is not about how much you make, but how you manage money. How do you reach and maintain an excellent credit rating?
First, you must track your credit score and reports with the 3 major consumer credit reporting bureaus—Experian, Equifax, and TransUnion. Without monitoring your scores and reports, you won’t know how well you’re doing, which puts you at a disadvantage in relationships and your personal and financial life. Your credit score, also called your FICO score, can be accessed through apps or traditional snail mail. We’ll focus mainly on ways to access your score and reports digitally.
Get your FICO score and reports digitally. The #1 way we recommend obtaining your credit score and reports is with a myFICO subscription. It is NOT FREE, but it's a worthwhile investment that ranges from $19.95 to $39.95 per month. Ignore the $19.95 subscription because it only focuses on a single bureau of credit data—Experian. You need the middle or higher tiers to access your data and scores from all 3 credit bureaus. Sure, this app will run you $360-$480 per year for the subscription we recommend, and while that may be expensive depending on your current financial situation, bad credit is almost certainly far more expensive. You’ll need a credit or bank card to sign up, and you’ll have to verify your identity to access your scores and credit reports from the 3 credit bureaus.
There is a cautionary word about 3 other popular “credit” apps that use a “Vantage Score.” We aren’t going into detail with this credit score model because we don’t see it in use with enough lenders to be relevant. That is to say, when you go buy a car, apply for a mortgage, lease an apartment, or apply for business credit with a personal guarantee, lenders we’ve encountered don’t check your Vantage Score. They check your FICO score. Therefore, until more lenders use the Vantage Score for lending decisions, we treat apps that use a Vantage Score model as entertainment only. If you’re interested, even though we don’t recommend them, you can check out Credit Karma, Credit Sesame, and Mint. While these aren’t the apps we’d recommend for tracking your credit score, they are wildly popular and provide some value, so we’re listing them.
DO: Pay attention to the tips they suggest for improving your score and read their reviews about credit products that you may be successful in securing.
BUT DON’T: Waste your time tracking your score there—no lenders of particular note use the scoring model they provide to make decisions that impact you.
Get a free credit report and score annually. If there is absolutely no way that you can afford a digital subscription, an option that we’d say is “better than nothing” is to obtain your report once per year for free. The US Federal Trade Commission (FTC) offers this advice on getting your credit report for free once per year, with options to get it online, by phone, or through snail mail. While we love that it’s free, we support regular, ongoing credit monitoring in a way that the FTC’s credit program doesn’t allow, but again, it’s better than not checking at all.
Practical Application
Learn the 5 things that go into your credit score and reports. Now that you have your report and score, it’s time to work! Your credit report and score are made of 5 components:
Payment history. How well have you paid your bills? Do you pay your car lease, credit card bills, medical debt, etc., on time each month? This metric is the most critical ingredient in your score, accounting for 35% of your FICO score. Even one missed payment can hurt your score tremendously.
How much you owe. How much do you currently owe companies that have loaned you money or given you credit? For instance, a credit card with a $2,000 limit with a $100 balance shows more favorably than a card with a $2,000 limit with a $2,000 balance (i.e., maxed out). This metric accounts for 30% of your score.
Length of credit history. How long have you had credit? Are you just starting with no credit accounts on your report? Or have you been paying credit accounts for 15 years? Generally, the longer you've had credit, the better your scores. This metric accounts for 15% of your credit score.
New credit. When you open a new account (i.e., a store credit card) or a lender checks your credit (i.e., when you apply for a credit card or car loan), your credit takes a minor hit. The hit is typically only temporary, but if you have several new accounts or credit checks all at once, you could end up with a lower score for a while. This metric accounts for 10% of your credit score.
Credit mix. What kinds of accounts do you have on your credit report? Is it diverse with a couple of credit cards, car loans, student loans, and mortgages? A diverse set of accounts typically results in a higher score if all of your accounts are well-managed. This metric accounts for 10% of your score.
Review your report and identify weaknesses across each of the 5 ingredients of your score. If you’re using myFICO, this step will be easy because the app breaks your score down into these 5 categories and tells you where you’re weak on each credit bureau. Make a targeted list of the problems you have in each area.
Develop a game plan. Once you know what is holding you back, you can figure out a method to address each area. Tackling credit blemishes can be overwhelming, and the advice you’ll find online is so varied and sometimes hard to follow. We don’t believe in offering blanket advice about addressing a credit situation because each person’s situation is unique. Here are some recommendations for getting help with a lower score—anything below 700.
Research advice from quality sources. Look for quality sources of actionable credit advice like this, this, and this. There is also this article about some popular credit myths.
Take a course. The more you know about a subject, the better you can tackle the issue. An issue like this can't address all facets of your credit situation, but it's a great jumpstart and tool to motivate you to get your credit game on point. We recommend pursuing a class that will allow you to dig into your credit situation with a qualified instructor who can help you to identify 1) the issues impacting your credit and 2) help you develop a plan for how to address the credit.
Involve a credit repair company. Companies like this market themselves as credit repair engines designed to help you fix your report and see your scores increase. Be cautious here. There are some ways that these types of companies can help you, but they're designed to fix errors on your credit report, not accounts that you indeed failed to pay on time. Some of these companies will promise you the moon, stars, and sun, charge a ton, and then leave you with a similar score 6 months later. Be cautious and use this method very sparingly.
Authority
“I love, love, love that you want to use your debit card. But to keep your credit score solid, you still need to keep a few credit cards and use them at least once every few months.” - Suze Orman
“Lenders look at potential borrowers from many angles before extending credit: How much of its income will a household need to put into debt repayment? How large is the down payment? Does the borrower have a job with a stable income? What is the borrower's credit score?” - Mark Zandi
“You don't have to justify your education by demonstrating its financial rewards. You don't have to maintain an impeccable credit score. Anyone who expects you to do any of those things has no sense of history or economics or science or the arts.” - Cheryl Strayed
“Your credit score takes into account years of information in most cases. It's not going to improve in a day. But it may improve more quickly than you think. Generally, the last 24 months carry the most weight, so if you can keep clean for that long, you'll see a boost.” - Jean Chatzky
“I came out of my professional athlete career with a 450 credit score, no money in the bank to show for it, but I had an Ivy League degree.” - Brian J. White
“Your credit score affects the interest rates you're offered on credit cards and loans, can be used to vet your job application, and in some states may influence your insurance premiums.” - Suze Orman
“Beware of little expenses; a small leak will sink a great ship.” - Benjamin Franklin
“You cannot escape the responsibility of tomorrow by evading it today.” - Abraham Lincoln
“To contract new debts is not the way to pay old ones.” - George Washington
“When prosperity comes, do not use all of it.” - Confucius
“A good credit score is not a unicorn, and you don’t need King Midas’ golden touch to establish and maintain good credit.” - Sean P. Even
Our Vote
Well-managed credit is a gateway to many things, from luxe experiences to comfy cars and fabulous getaways to comfortable apartments and homes to wealth-building opportunities. Credit is also important in relationships, and like money, it's often the source of tension for couples who want to build a life together.
We support digital credit score and report monitoring because we live in an age where you can access all of this information in seconds, almost in real-time, right from your phone. Unlike a 2 hour foray into the funniest TikToks of the day—we know that’s refreshing sometimes—just 30 minutes per month of checking your credit report can impact your life.
We believe myFICO (not sponsored) is the best choice for reasons beyond what we have the space to mention here, but take our word for it—as your credit game matures and as you get ready to expand your credit accounts, you’ll have access to features and tools that, simply put, will blow your mind (in a good way!).
When it comes to fixing your credit report and score, we recommend doing as much of this work ON YOUR OWN as you possibly can. That will sound crazy to some, but there’s no better way to fix your credit report than learning what’s wrong with it and how to fix it on your own. This doesn’t mean you must research your fingers to the bone or create new strategies and solutions. But it does mean exploring, reading quality blogs, asking the right people for help, learning how to contact creditors and credit bureaus, using suitable templates, or taking a class to learn what exactly you need to do for each type of situation—whether it’s writing letters to credit bureaus or creditors, disputing inaccurate information, or waiting out negative information falling off.
By learning exactly what’s wrong with your credit file, what it takes to fix it, and then implementing those fixes, you’ll:
Fix your report
Understand how you fixed your report
Understand all that it takes to fix it once you’ve broken it
Save a lot of money on credit repair and with future creditors
Understand how not to end up in this same position again
Whatever you do, don't wait to fix your score. Don't wait for the sun to do something special or for the moon to align in any particular kind of way. Don't wait until the turn of the year to make it a New Year's resolution. Just start. However it makes you feel—whether it puts you into an excited or an anxious state, whether you think it's fun or you think it's the worst thing ever—just do it.
You can't magic a good score into existence by hoping for it, thinking about it, or talking about it. It takes hard work, dedicated action, and time, just like anything good that lasts. We know how it goes—desperate people fall for desperate things. The worse your credit situation is, the more likely you may be to latch onto something seemingly miraculous or mystical because what you've gotten yourself into seems like it'll take a miracle to get out of, but it doesn't. This kind of thinking makes people fall victim to "get-rich-quick" schemes, cults, and shiny new objects—the newest fads someone inspiring says are must-follows.
We don't knock healthy exploration, but we are all about strategic action at Run Success. And the bottom line when it comes to improving credit scores and reports is that you just have to do the damn work. That's why we don't vote for the kinds of credit repair companies that promise you an effortless, blemish-free credit file by using shady or illegal tricks, even if they know your credit issues come from simply not paying your bills. That's not a lasting solution. Credit repair takes systematic, consistent action. Once fixed, maintaining those better scores and cleaner reports takes accountable behavior. As your reports improve and your score increases, you'll start to feel better, and positive energy will flow as your new financial credit status opens once closed doors.
Reversal
There should never be any reversal to this law. Under no circumstance should you ever ignore your credit reports. Check them at least yearly, even if you have damn near perfect scores. Better yet, check your reports and scores monthly to see how your scores trend and ensure your credit reports are not compromised. Let nothing get in the way of your credit and score monitoring game.