Like It or Not, You Need a Good Credit Score

In my perfect world there would be no credit scores. And while I do not believe that credit is necessarily evil, in that perfect world of mine, there would be no need for any of that because it would be, well … perfect!

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Back to reality. There are myriad reasons we need to have good credit histories and excellent credit scores. 

Like it or not, lots of things are now predicated on one’s credit score. Take automobile insurance premiums, for example. Want the best rates? You’ll need a good credit score. 

Want to make sure that out of all the applicants, you get that really great apartment? You must assume that your potential landlord is going to look to your credit history to determine if you will make a reliable, on-time-paying tenant.

Are you vying for a job with a great employer? Better hope your credit file is clean and represents you well because employers are allowed to look at the way you handle your finances.

We live in a world where, in select situations, one’s credit report is considered a character reference. Look in my credit file and you will get a good idea about how I manage my life. You’ll see evidence for how seriously I take my commitments, a little about my personal integrity.

The most highly regarded, and used by most lenders and others who look at credit scores, is the FICO Score. Each of the big credit bureaus has its branded version of FICO. How these scores are determined, based on the collected information in one’s credit file, remains proprietary with the Fair Isaac Corporation, creator the FICO Score. 

We do know, however, that FICO looks at what it calls “utilization rate.”

Your utilization rate is your credit limit compared to how much of that available credit you are using at any given time, expressed as a percentage.

So, if you have a credit card with a $1,000 credit limit and a $100 balance owing, then you are 10 percent “utilized” on that card. You figure utilization rate by dividing the balance owing on the account by the limit on the card and then multiplying that figure by 100. ($100 / $1,000 = .o1 x 100 = 10)

You can figure your “aggregate utilization rate” by adding together all of your credit card balances, dividing by the total of the credit limits on all of those accounts and multiplying by 100. Credit scoring looks at both utilization rates. 

The best utilization percentage to have is 0 percent because then you have no credit-card debt and you’re not paying interest. But, since that’s not realistic for everyone, the best percentage is the lowest percentage you can achieve. In fact, according to FICO, consumers who have scores above 760 have an average utilization percentage of 7 percent.

There are reports all over the Internet that insist 30 percent or 50 percent are the “target” percentages in order to achieve great scores. Those are false reports. In fact, nothing terrific happens at either 30 percent or 50 percent. Thirty percent is certainly better than 50 percent but not as good as 20 percent. 

Think of utilization rates as you would golf: The lower the score the better. Generally, to achieve the best credit score, your utilization rate should be under 30 percent, with the goal to get it down as low as possible. 

Pay down your credit cards as much as you can. There’s nothing good about having a lot of credit-card debt. It’s expensive debt and it wreaks havoc on your FICO Scores. And if you can get your utilization rate below 10 percent, your score will thank you!

Question: On a scale of 1 to 10 where 1 = “couldn’t care less” and 10 = “totally obsessed and check it regularly,” what is your relationship with your FICO Score? Use the comments below to weigh in.

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15 replies
  1. kim b
    kim b says:

    I am obsessed. My credit was great until 2008 when the economy took a dive and my husband became disabled. I am working diligently to rebuild our credit and become debt free.I am 2 payments away from paying off my car, but unfortunately, it is now needing lots of work. I watch every penny that goes out and go over my finances every morning. Had I done this earlier in my career (I am retired) I would have had a lot more money than I do now.

    Reply
  2. ABC
    ABC says:

    I’ve never worried about my credit score and never tried to find out what it was. We always carry a zero balance on the one credit card we use (a Chase Freedom, which they offered me $300 to take, and I have since made about $500-$600 more off of), always make our house payments and bills on time (bank drafted), and are one payment away from paying off our truck (already paid off the ’02 car long ago). When we bought the truck, the lady at the credit union commented on how great our credit scores were (my husband’s and mine), and so, out of curiosity, we asked what they were. I can’t remember the exact numbers, but they were both over 800, and mine was higher than my husband’s. Don’t know how that happened, as everything we’ve ever bought on credit was in both our names, never just mine.

    So, like Brad who posted below, I guess I sort of live close to that “perfect world” also, . All the glory goes to God, who has ALWAYS, over the past 30 years of our marriage, provided what we needed and then some.

    Reply
  3. Confused teen
    Confused teen says:

    Do you have to have a credit card to have a credit score? Or does it work with debit cards as well?

    Reply
    • DianaB
      DianaB says:

      Debit cards simply draft directly out of your bank account and are not actually cards you purchase things on credit, so they are not reported. Utilities will sometimes report to one of the credit bureaus, student loans will report, certainly lenders on vehicles and homes do at least monthly. Credit cards are considered “unsecured” because you have no real stuff they can come and repossess as you have actually used or eaten whatever you have purchased on them. Secured are the tangible ones where your house or car can be repossessed and resold, leaving you holding the bag for any difference in what you owe and what the item sells for. So, you should have a credit score out there somewhere.

      I still have some late payment notes on my credit score account from 2008 when my daughter died and I was not able to sell her house for almost a year (the mortgage was in my name) but soon that should fall off since it has been 6 years. However, my other creditors listed all have glowing monthly reports so my credit score is quite good.

      Reply
  4. Grandmadiane6
    Grandmadiane6 says:

    8..I check mine every month..I go to creditkarma.com and they give me my score for free..Mary is this a good website?

    Reply
    • DianaB
      DianaB says:

      creditkarma.com seems to be excellent. There is no fee associated with them (of course, they offer other stuff on their site which advertising takes care of them and they can offer it for free). They will even remind me monthly to check my score. You can check a number of other credit-related things on their site, as well. They are the only free on that I know of. They are a secure website.

      If you have been turned down for insurance, a loan or something of that nature, you are eligible to check your score for free via whatever credit bureau they used to check on you and whomever turned you down will issue you a letter telling you who they used to find your credit score and to contact them directly.

      Bear in mind that not all who check on your credit score uses the same credit bureaus to inquire or report on your account. There are three major ones and not lender uses the same one.

      Reply
  5. Birgit Nicolaisen
    Birgit Nicolaisen says:

    I don’t check it much, but I do keep check my monthly credit card statements carefully and pay on time and try to keep the balance as close to zero as I can get. I must be doing something right, they keep raising my credit available to the point where I could charge a car to my account (NOT THAT I WILL EVER DO THAT OF COURSE).

    Reply
  6. Confused Consumer
    Confused Consumer says:

    Where did you get the information about the credit card utilization rates and the FICO score. I have had several different loan officers and bankers tell me that the highest FICO score is achieved with a 30 percent utilization of your credit cards. I never liked that concept so I am wondering where you learned differently.

    Reply
    • KayVA
      KayVA says:

      I don’t like the idea that everyone but me knows what it is. How do I get it? There are so many that aren’t the actual ones!

      Reply
    • Caz
      Caz says:

      Actually it is not helpful to your credit score to have zero balances. This is because they look at that as a higher risk because you could potentially charge an enormous amount and max them out and not be able to make the payments. It is better to show responsible spending by using them and paying on them on a monthly basis. You should attempt to keep your utilization between 25 and 35% for optimum positive credit. If you have zero balance you are not showing responsible payment history.
      This has been explained to me in depth by several experts including mortgage brokers and underwriters.

      Reply
  7. Brad
    Brad says:

    ‘1’. I believe it best to eliminate debt and avoid credit cards. If you do have credit cards, I agree very low utilization is preferable and the cards should be paid in full each month. Of course, I may be in a similar perfect world to the one Mary describes!

    Reply
  8. Jessica
    Jessica says:

    9! My husband and I use a credit and identity fraud monitoring service, which gives us quarterly updated scores and lets us know the moment anything new hits our credit. This is now important to us because previous to using this service, I was a victim of ID fraud, and had no idea until I went to apply for a car loan. It was a mess to clean up, so the $30/month is worth it to me!

    Reply
  9. Traci
    Traci says:

    10! I Have a Walmart card with a zero balance. As a benefit they provide your FICO score free of charge, so I check it monthly when it updates.

    Reply
  10. Beck
    Beck says:

    I would say a “1” because the way it is figured is not a good way to determine if someone can repay debt, make an insurance claim or be a bad tenant. I worked in the banking and brokerage industry for many years. Loan officers took into consideration income, other assets, length of time on the job and even if someone had a lot of debt – they checked to see if they are paying on time. Paying on time, regardless of all other factors, is what made the loans or credit cards get approved where I worked. FICO give you a lower score for having all credit cards and no installment loans. People that have paid for cars and homes that have no installments have a lower score sometimes because of that. Eventually your mortgage payment record and installment records fall off. I would rather give a loan to someone who has a paid for car and paid for home than someone who has several installments open.

    Often times we would say this person must be living on beans somehow they make all their payments on time. If they were never late on a payment they almost always got approved regardless of all other factors.. Now to some that may not have been a good way to look at it but where I worked that is exactly how it was done. Unless everything is done by a computer without a human factor that is the only time that I can say a credit score alone has the potential to be an all or nothing.

    Reply
  11. Broonessa
    Broonessa says:

    One of my credit cards shows my score when I log in to my account. I check my score at least once a month, even though it says right on the page it’s updated every three months…so I guess I am a little obsessed!

    Reply

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