How Your Credit Score Is Calculated

Houston, we have a problem.

The title for this lesson is, “How Your Credit Score Is Calculated,” but here’s what we don’t know . . . how your score is calculated. Yeah, that’s kind of a big deal. If you are going to be graded and so much lies on getting a good grade, wouldn’t it be nice to know what you need for a good score?!

https://youtu.be/m7B08kXTxVQ

It probably seems like you have little control over your credit score, but that’s not really true.

Even though we don’t know exactly how it is calculated, we do have some rules of thumb from credit scoring companies you can live by that will help improve your score:

1.) Pay your bills on time. Late payments and collections can have a major negative impact on a credit score.

2.) Keep balances low on credit cards. High outstanding debt can affect a credit score.

3.) Apply for and open new credit accounts only as needed. Don’t open accounts just to have a better credit mix. It probably won’t improve your credit score.

4.) Pay off debt rather than moving it around. Also, don’t close unused cards as a short-term strategy to improve your credit score. Owing the same amount but having fewer open accounts may lower your credit score.

But there’s one more powerful tool we have that can help us quickly improve our credit score . . . find out in the next lesson!

The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.