Details

Here’s what to consider when reviewing your score and report.

Score

• Is my score higher or lower than before?
• Is my score within the same score range (e.g. Bad, Fair, Good, Excellent etc.)?
• If my score has changed more than 15-20 points, do I know why?

Report

• Is the listed personal information still correct?
• Do the accounts, loans, and balances (keep in mind not all recent payments may be reflected) look correct?
• Have there been any unexpected “hard credit inquiries”? (If you haven’t applied for a new loan or credit, there shouldn’t be.)
• Are there any unexpected collections or public record notices?
• Do I need to report an error?

Frequency of Checking

Keeping a constant pulse on your credit score or report isn’t typically needed. While checking it weekly will help you to see what “normal” fluctuations in your score look like, once you have a feel for that, an occasional checkup is all that’s needed. Don’t forget, in most instances, unless you are about to apply for a loan or some other form of credit, your score doesn’t matter all that much.

The primary reasons to check it are A) to make sure there aren’t any obvious errors in your credit report and B) to make sure your score is generally heading in the right direction over time.

Because your score is a snapshot in time and a variety of factors can impact it in the short term, let’s take a brief look at the most common reason for a score fluctuation: your credit utilization percentage. This is the amount of credit you’re using over the total credit available to you. All things being equal, the lower your credit utilization, the better your credit score. So for example, a 5% credit utilization rate is better than a 25% utilization rate. (Typically, utilization rates for those with the best credit scores are less than 10% but shoot for whatever you can and see “Pro Tips” below.)

Example

Let’s walk through an example:

• For simplicity, we’ll assume you have only one source of credit and it’s all on one credit card that has a total credit limit of $25,000.
• You always pay the full amount on your card which is typically around $2,000 for an 8% credit utilization rate ($2,000/$25,000=8%).
• But this month, at the time the credit reporting agency takes its “snapshot”, your balance on that card is $5,000.
• This means your credit utilization is 20% ($5,000/$25,000 = 20% credit utilization).
• So even though you plan to pay this off in full at the end of the month – which would effectively mean your “real” credit utilization is 0% – the credit reporting agency doesn’t know that at the time they take their snapshot. All they know is what they see.
• An increase in your credit utilization from 8% to 20% would likely trigger a drop to your credit score even though nothing has really changed.

This is just one example of why we say to only check your score and report no more than once a month and in most cases, once every two or three is fine too.

Pro Tips

Two Ways to Lower Your Credit Utilization and Improve Your Credit Score

1. Call your credit card company and ask them to raise your credit limit. While this might trigger a hard inquiry, that is only temporary and has a lower impact on your score than your credit utilization rate. And a higher credit limit combined with the same spending will lower your utilization which will improve your score. Typically, for a customer with a good history of responsibly using their credit card, a card company will happy to raise your limit. (But don’t use this as an excuse to charge more!)
2. Pay off your credit card balance twice a month. By paying your credit card balance off twice a month, you are effectively lowering the maximum amount of credit used at that particular moment in time. So if you typically charge $4,000 a month but pay it off in two payments of $2,000 instead of the whole $4,000 all at the end, the maximum amount of credit being used at any given moment would be around $2,000 (assuming equally spaced spending) which would effectively lower your utilization by half.

And don’t forget, you can always lower your utilization by simply charging less on your credit cards.

How to Get Your Credit Score

You can find your credit score by going directly to one of the three major credit reporting agencies (Equifax, Experian, TransUnion) or using a third party site (e.g. Credit.com, Credit Karma, Credit Sesame etc.). These options will all allow you to get your score for free even though some may offer extra services for a fee.

Remember: Your credit score is just a snapshot in time. It will fluctuate week to week and month to month. But document it here to have a ballpark figure and to take notice if you see major unexpected changes. 

Additionally, checking your own credit score will not hurt your score. When you check your own score, this is known as a “soft inquiry.” Soft inquiries have no impact on your score. “Hard inquiries” on the other hand can negatively impact your score but it has only a low and temporary impact. A hard inquiry is usually performed by a potential creditor who is considering lending you money, e.g. for a car loan, a credit card etc.

Credit Report

The U.S. Federal Trade Commission (FTC) says to get your credit report from AnnualCreditReport.com. Specifically, the FTC says, “The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.”

Since you can get a copy of your report from each company once annually, and since the report should have the same information across all three if it’s accurate, we recommend getting a new report from each company every four months. It should only take a few minutes to review so doing this three times a year shouldn’t be a problem. 

Credit Score

There are different formulas for calculating a credit score but the main two are FICO and Vantage. Fortunately, the score range is the same for both (300 – 850) and both formulas are based on information coming from your credit report. This means, regardless of the formula used, or which company you’re getting your score from, it shouldn’t vary too much.

There are three places you can get your score from.

• Your Bank: If you already have a credit card from a given bank, there’s a good chance they have a place where you can see your credit score. Simply login and see if they promote “FICO” or “Vantage” or “Credit Score” anywhere on the site.
  
  The good thing about getting your score through your bank is you don’t have to create a separate account to check it and you already visit that site regularly. For these reasons this is our recommended method for checking your score.

• A Credit Bureau: You can create a free account with Equifax, Experian, or TransUnion to see your credit score. The benefit of this is that if you’re going to have your credit checked by a potential lender, and you know the bureau they will use (although, sometimes they’ll check all three), having an account with that credit bureau gives you visibility into the score and report the lender will see.
  
  The downside about the three bureaus sites is that they might charge you a fee to see your score (it’s usually only a $1). Even more annoyingly, their sites try really hard to get you to sign up for all kinds of other products you probably don’t need. This can make the process of getting your score annoying. Don’t be fooled and sign up for extra services or pay for something you could probably get for free elsewhere. 

• A Third Party: There are dozens of sites that will show your score for free. You’ve probably seen the advertisements too. CreditKarma.com, CreditSesame.com, and Discover Scorecard are just a few examples. These are all reputable sites and they each have a few features you may like too.
  
  The downside to these sites is that they make their money through advertising when you see an ad or click through on one. Because of this, they do everything they can to target you with products they think you’ll sign up for. This isn’t necessarily a bad thing (you may actually find some great offers). But if you’re the type of person that may be tempted based on offers for “cash back” or credit card rewards, you may want to get your score elsewhere.
  

Conclusion

There’s no right or wrong place to get your score as long as it’s from a reputable site and it’s convenient for you. You’ll probably want to check your score at least once a month so using a site that’s easy to navigate and explains your score well is just about as important as anything else.

There’s a wealth of information from reputable sources about credit scores and credit reports (including articles like this from the FTC). But for your convenience, we’ve summarized the most important details below.

What is a Credit Score?

Your Credit Score is a number that impacts the interest rates you pay any time you borrow money (like if you borrow money to buy a car or a house or have a credit card). Generally, the lower your score, the higher your interest rate, and the more you’ll ultimately have to pay when you buy something using a loan. The higher your score, the lower your interest rate and the less you’ll have to pay.

Importantly, credit scores and reports are not only used by people who are considering lending you money. They are also used by potential employers, landlords etc. to get a sense of your level of responsibility.

Why You Should Check Your Score

Checking your score and/or report can help you spot errors or outright fraud. For example, an unpaid balance on a fraudulently opened card would cause your score to drop. Additionally, knowing your score can help you discover loans or credit cards you may be eligible for. You want to ensure you’re getting the best rates on loans and the best rewards on cards you’re eligible for.

Credit Reporting Bureaus

There are three bureaus that report your score: Experian, Equifax, and TransUnion. While their exact formulas slightly differ, assuming they have the same data, your scores from each should be pretty close.

The Difference Between Your “Credit Score” and “Credit Report”

Your score is simply a number and the report shows the details of why you have that score. The report includes things like when you’ve applied for a loan or line of credit, your existing debt, and associated debt payment history. Depending on who’s checking, they will either get access to your score or a version of your credit report. For example, potential employers can get an “Employment Insight Report” that contains less information than a report you pull for yourself and these reports never contain your credit score.

Credit Score Ranges

Credit scores range from 300 up to 850 and higher scores are always better. That being said, in most instances a few points up or down will not make a difference. Before applying for a loan or line of credit, ask the lender what credit range will get you a particular rate. If you’re well above that range you don’t need to worry about a few points here or there. If you’re below it, you know what you need to shoot for.

Factors that Affect Your Credit Score

Every credit reporting agency has a slightly different formula. But each uses an element of the five factors listed here. In order of importance they include:

1. Payment History

   This is the most important factor. In fact, even a single missed payment can be detrimental. This is why it’s so important to at least pay the minimum owed every single time. If your payment is late, you will be charged a fee (boo!), but it won’t count as “missed” until it’s 30 days late.
   

2. Amount Owed
   

   This is usually based on a “credit utilization ratio” across all your accounts. In other words, if you owe $5,000 and your total available credit is $15,000, your utilization ratio is 33.3%. The lower the ratio the better because it shows you know how to use only what you need. A utilization ratio above 30% tends to be seen negatively and those with the highest credit scores tend to have ratios in the single digits.
   
   But remember that your credit score is a snapshot in time. Therefore if you look at your score right before you pay your credit card bill, it will be worse than if you check after you pay your bill. Keep this in mind before applying for a loan and make sure to pay off any balances you can before having your credit pulled.

3. Credit History
   

   The longer your credit history, the better. However, before the young folks get upset about not having had the chance to develop a long history, remember that this factor is only about half as important as the first two. Credit history is usually based on the average age of all your credit accounts. Therefore make sure you keep your oldest credit card open (even if you don’t use it) since this line of credit will increase the average credit history length.

4. Credit Mix
   

   Handling different types of credit responsibly is another sign that you are responsible. A diversified mix of credit could include credit cards, student loans, auto loans, a mortgage etc. Does this mean you need to acquire more debt to diversify your credit mix? Not necessarily. But if you plan on using debt at some point (e.g. to buy a home), be aware that you may want to build a history with a mix of credit types even if you only use some sparingly.
   

5. New Credit & “Hard” Inquiries
   

   Opening a bunch of new credit or having a bunch of “hard inquiries” from lenders, negatively affects your score. Fortunately, these impacts only last a short time and shouldn’t impact your score very much. Additionally, if you’re shopping for a mortgage, note that you have a special 45 day window. During this time, all of the inquiries from potential lenders will only count as one. As a result, this gives you the ability to comparison shop without making your score worse as you go.
   

Your Credit Score Matters…But Only Up to a Point

Your score is good for showing lenders, landlords, and employers that you’re responsible. But it’s not good for things like impressing your date or cocktail party conversation. And nobody is going to give you a trophy when it reaches a certain point. In fact, the personal finance industry focuses way too much on the credit score. Just check your score and report for errors and be aware of your score’s impact when applying for credit. If you do the right things in the rest of your financial life, your score will improve in the long run.