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How to Navigate Your Credit Score

CJ Miller of Sensible Money explains that understanding your credit score isn’t as complicated as it sounds and having a high score can save you tens of thousands of dollars of interest over your lifetime.

by CJ Miller, CFP, RMA

Credit scores are one of the most widely discussed personal finance topics, but not often fully understood by the public. According to a survey of more than 1,000 people conducted by LendingTree, “37% of Americans agree with this statement: ‘I have no idea how my credit score is determined.'"

Understanding your score isn’t as complicated as it sounds and having a high score can save you tens of thousands of dollars of interest over your lifetime.

There are three credit bureaus that report your score. They are Equifax, Experian, and TransUnion. You can request a free copy of each report once per year and can do so on Although tracking your credit report is important, most lenders use your FICO® Score to determine creditworthiness. Your FICO® Score is independently calculated by Fair Isaac Corporation, and is more efficient for lenders to use. Most major banking and credit card companies now offer a free FICO® Score tracking service, with scores typically updated monthly.

Your credit score ranges from as low as 300 to as high as 850. A score from 670-739 is considered to be a “good” score, and the average American credit score is 711 as of 2020. The average score has increased each year since 2009. If you build a credit score of 740 or higher, you are considered to have a “very good” score, and you’ll be in great shape to get access to loans at favorable rates.

There are a variety of factors that influence your credit score, but they are readily known so you can plan to increase your score over time. This is the breakdown of the factors by weighted importance:

  1. Payment History – 35% of your score
  1. Amounts Owed – 30% of your score
  1. Length of Credit History – 15% of your score
  1. New Credit Inquiries – 10% of your score
  1. Credit “Mix” – 10% of your score

Clearly, a primary way to boost your score is to make consistent payments over time. If you haven’t held any debt in the past, one option to boost your payment history is to put everyday expenses on a credit card and pay off the balance each month. A rule of thumb to follow for the “amounts owed” category is to keep your debt spending below 30% of your available credit. So, if you have a $10,000 credit limit, don’t spend more than $3,000 on that card.

To increase your score on the other categories, use the following tips:

  • Don’t close your old credit cards, even if you don’t use them anymore, because it will decrease your “average age of credit”.
  • Try not to apply for too much new credit at once, especially if you have a big purchase coming up that requires financing like a home.
  • Establish a mix of “revolving” credit like credit cards and “installment” credit like auto loans.

About the author: CJ Miller, CFP, RMA

CJ Miller, CFP®, RMA® is a financial planner with Sensible Money in Scottsdale, Arizona. Miller is also a member of the Financial Planning Association (FPA) of Greater Phoenix Board of Directors and involved in the Active 20-30 Club. 

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