Why Is Your Credit Score Important?

Keeping and maintaining a good credit score is one of the most important aspects to maintaining good financial health.

Your credit score is vital to your ability to borrow money from banks and other lenders. Therefore, it will affect the rate that you pay when you borrow money, so having a low credit score can really cost you a lot of money.

Surprisingly to some, your credit score can also impact your cost for car insurance and even impact your ability to get a job.

Your FICO score can range from 300 to 850.

     Excellent Credit 750+

     Good Credit: 700-749

     Fair Credit: 650-699

     Poor Credit: 600-649

     Bad Credit: below 600

Here’s what goes into determining your FICO score.

35% Credit History

The most important factor in your credit history is how you make your payments. Delinquencies and late payments negatively affect your FICO score.

If you make all of your payments on time and have not defaulted on any loans this portion of your FICO score should be good.

30% Amounts Owed

The total amount of all of your outstanding debts. Your FICO score will also take into consideration your total credit utilization, the amount you owe compared to your total available credit. If you have most of your available credit maxed out your score will be lower than if you use only a small percentage of your available credit.

FICO says that people who have credit utilization of 7% or less is generally considered the best, although

10-20% usage is ok. Because FICO considers your overall credit usage as well as the usage of each loan relative to your available credit, it may be better to have 2 outstanding loans each with a smaller percentage of your overall usage, rather than one loan that is near the limit of your available credit.

15% Length of Credit History

How long you have had credit is another factor in determining your FICO score. The longer you have had accounts open, and the older the overall average age of all your credit the better your score will be.

Closing old credit accounts may actually lower this portion of your FICO score, so consider leaving them open and just not using them. However, if the loan has fees, I wouldn’t worry about it. Go ahead and close the account. Even though your score could drop, it will likely only be temporary.

10% Credit Mix

FICO likes to see a good mix of credit use. Credit cards as well as installment loans such as car payments and mortgages.

10% New Credit

New credit can negatively affect your FICO score as well as inquiries for new credit.


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As you approach retirement you will be making some of the most important financial decisions of your life. Most of these decisions don’t get a do-over, once you’ve made them your stuck.

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