Your Credit Score Matters—Here’s Why (and How to Keep It in Good Shape)

Your credit report and credit score are foundational to your overall financial wellness. We’ve covered these topics in our [Debt Podcast Episode] and also have a free credit report and score guide available [here]. But because of how critical this topic is, we felt it deserved its own dedicated blog post.

Why Is Your Credit Report and Score So Important?

When (or if) you need to take on debt—whether it's a credit card, car loan, or mortgage—your credit report and credit score help lenders determine how reliable you are as a borrower. A good score can unlock better loan terms, while a poor one can make borrowing more expensive or difficult.

Beyond borrowing, monitoring your credit report is a great way to protect yourself against fraud or identity theft. Mistakes on your report can also hurt your score, which is why regular check-ins are essential.

How to Check Your Credit Report for Free

You’re entitled to a free credit report from each of the three credit bureaus—Equifax, TransUnion, and Experian—once a year. Go to AnnualCreditReport.com to request your reports. You don’t need to pay for this, and checking your report does not impact your credit score.

Look over each report for errors or unfamiliar accounts. If you find a mistake, you can file a dispute directly with the credit bureau that shows the error.

Understanding the Credit Bureaus

There are three main credit reporting companies:

• TransUnion

• Equifax

• Experian

While the information in each report is usually similar, their scoring models may differ slightly. It’s smart to review all three. The credit bureaus collect and maintain data about your credit history to produce a credit report and calculate your credit score. Lenders can then use this information to assess your creditworthiness.

How Your Credit Score Is Calculated

Most credit scores use the FICO model, which breaks down as follows:

• 35% Payment History

• 30% Amount Owed (also known as credit utilization)

• 15% Length of Credit History

• 10% New Credit

• 10% Credit Mix

According to a recent Experian article, the average credit score in the U.S. in 2024 was 715. Do you know what your credit score is? Is your credit score average, above average or below average? Keep reading on to learn how you can improve or maintain your credit score.

FICO Credit Score Ranges:

• Below 580: Poor

• 580–669: Fair

• 670–739: Good

• 740–799: Very Good

• 800+: Exceptional

Key Credit Tips and Considerations

• Be cautious with co-signing. If someone asks you to cosign a loan, it often means they can’t qualify on their own. Even if they promise to make payments, you’re legally responsible if they don’t.

• Understand hard inquiries. When you apply for new credit, it results in a hard inquiry, which can temporarily lower your credit score.

• Income is not a factor. Your credit score doesn’t take your income or bank balances into account.

• Try a secured credit card. If you’re new to credit or rebuilding, a secured credit card can help. You’ll deposit money upfront (often equal to your credit limit), and that deposit acts as collateral. As you make on-time payments, you’ll build a positive credit history.

• Help your child build credit. Consider adding your child as an authorized user on your credit card. This helps them start building credit early—but be sure to teach them responsible credit habits first. The minimum age varies by issuer.

  
  

Tips to Maintain a Healthy Credit Score

• Always pay on time. Set up auto-payments to avoid missing due dates. Payment history is the biggest factor in your score.

• Keep your credit utilization low. Aim to use less than 30% of your credit limit. For example, if you have a $10,000 credit limit, keep balances below $3,000. If your credit limit increases, don’t see it as permission to spend more—use it to maintain a healthy utilization rate.

• Maintain old credit lines. Keep your oldest credit card open and active (even with a small recurring charge on autopay). A longer credit history improves your score.

• Avoid opening too many accounts at once. Opening several new credit cards in a short time can signal financial stress. Skip store cards unless you're building credit with intention.

• Have a mix—but only when it makes sense. A diverse credit mix (e.g., credit cards, car loans, student loans) can help, but it’s only worth 10% of your score. Don’t take on new debt just to “improve” your mix.

Final Thoughts

Your credit report and credit score are powerful tools in your financial toolkit. They can open doors to better loan rates—or cost you thousands in interest if ignored. By checking your report regularly, disputing errors, and managing your credit responsibly, you can protect your financial future.