Credit Score Guide for Beginners

A credit score is a funny thing – we put so much emphasis on them for our big life purchases, yet some of us rarely try to understand what goes into a score. To some, it may feel like an elusive number that we have little control over. To others, it’s a number that seems to follow them wherever they go.

A credit score is only one piece of our entire financial puzzle. It’s not the only indicator of our financial health, but it’s an important aspect. There’s a reason you can find so much information on a credit score and credit score monitoring services – everyone has to have a number to finance anything.

Fortunately, you can access all of your information right away. It doesn’t have to be a conundrum or something you feel you can’t control. Today I’m here to help you unravel the mystery of knowing your credit score and understanding your credit report.

What is a Credit Score

A credit score is the 3-digit statistical number assigned to you, which ultimately determines your creditworthiness as a consumer.  A score will range from 300 to 850, with 850 being the absolute perfect score.

Credit Score Ranges:

The range of credit scores is also important to understand. You can expect your credit score to fall into one of the following categories:

  • 300-579: Poor
  • 580-669: Fair
  • 670-739: Good
  • 740-799: Very good
  • 800-850: Excellent (only 0.5% of people have a score of 850)

What is a good credit score?

So, what is a good credit score? That depends on who you ask, however, most people agree that a credit score of 670 or higher is considered good.

There are those who would argue it doesn’t make sense to be boxed in by a number. Still, a credit score is a statistical indicator many companies use to make sure you will pay your bills on time.

Try not to focus on the category you fall into, but on what you can do to improve your overall number.

Why Do You Need a Credit Score?

Like it or not, our credit scores are used to determine our ability to borrow money in a responsible manner. Credit scores and reports are the indicators of your behavior with lending.

I like to think of credit scores and credit reports as general report cards. You may not agree with every entry, but overall it gives you a fair mark based on how responsible you are.

Credit scores aren’t used only for determining creditworthiness and responsibility. Your credit score can directly impact the interest rates you qualify for, which impacts how much you pay for certain items.

For instance, if you’re applying for a 15-year mortgage (or any mortgage) then the interest rate you are quoted from the lender will be based on current market conditions and your credit score. So the higher your credit score, the lower the interest rate. Therefore you want to protect your credit score – you’ll save thousands of dollars over the life of the mortgage because you secured a lower interest rate.

Most people understand they need a score to borrow money, but credit scores are also used for other everyday purchases. Your credit score can be pulled when you’re applying for insurance – and your score can affect how much your premium could cost you. Your credit can also be pulled when purchasing a cell phone and setting up a contract for services.

If you ever need to borrow money or rent an apartment, you have to have a good credit score. Unless you pay cash for everything, you can expect your credit score to be reviewed and used for qualifying.

How Are Credit Scores Calculated?

Have you ever wondered how your credit score is actually calculated? It’s important to know what’s in your credit report and what’s determining your credit score.

The information in your credit report falls under specific categories, and each category is given a weight. The score is then calculated using a specific algorithm, based on the weights of these categories.

Calculating a credit score is a complex process. Each reporting bureau (Equifax, Experian, and TransUnion) uses a slightly different calculation. This is also true with the brand name scores such as FICO and Vantage.

There are three major credit reporting agencies:

They gather information from anyone you’ve done business with. They find out if you’ve been on time, been late or if you’ve ever defaulted on payments.

There are several factors that are considered such as your payment history, credit utilization, age and mix of your credit, and credit inquiries. We’ll get into each of these categories in greater detail, but it helps illustrate how much information is used to determine one number.

Rather than spend too much time worrying about how your score is calculated, focus on the information contained in your report (both accurate and incorrect).

FICO Credit Scores

When you hear lenders referencing a credit score, they are typically referring to your FICO score. FICO is the acronym for Fair Isaac Corporation. It’s by far the largest of the companies which calculate your credit score. The FICO score range is 300 to 850, and like other credit scores, the higher the better.

Think of FICO as the brand name for a score. You might hear of other brand names, such as Vantage, but the FICO score is considered the gold standard.

It’s important to note your FICO score is not always the same credit score you would receive from the individual credit bureaus. The FICO score is its own proprietary calculation, so it’s a unique number. It’s possible the credit scores reported by the Big 3 are close (or exact) to your FICO score, but it’s not always the case.

How FICO Scores are Calculated

The analytics team at FICO couldn’t be satisfied with only one way to calculate a credit score. FICO actually has multiple models used to calculate different credit scores, based on the type of lending. For instance, a lender from a mortgage company would use a different score than a car loan company.

This is important to understand because the FICO scores you see online don’t always match the ones your potential lender would be using. If a lender tells you your credit score came back as one number, but you saw something different online, then this is why.

You might have seen the recent news about the changes in the FICO scoring model. Don’t worry, this is another calculation model, which brings in more data related to your last 24 months of borrowing. It’s referred to as the FICO 10 and is yet another example of FICO using different calculation models.

How to Pull Your Own Credit Report

Fortunately for all of us, we can now access our credit scores and report information with the click of a button.

One of the easiest and most convenient ways to pull your credit report is to visit The Fair Credit Reporting Act (FCRA) permits you to obtain one credit report for free each year from each of the 3 reporting agencies. You can pull a free report from Equifax, Experian, and TransUnion once every 12 months.

If you want to pull your credit report more than once per year then you can visit each of the reporting agencies ’ websites and make additional purchases.

Another convenient way to monitor your credit score on a monthly basis is to go through your credit cards. Many cards offer a free service where they monitor your FICO score. There are also banks that offer this service when you have a checking or savings account. There are several ways you can access your score for free, without paying for an expensive monthly monitoring plan.

If you have an account with an institution that provides free score reporting, make sure you take advantage of this perk. It’s a way to monitor your score at-a-glance on a monthly basis.

How to Read Your Credit Report

First, you should notice the basic information. You’ll notice your name, address, and social security number. It’s a good idea to verify the basic info.

As I mentioned earlier, your credit report also contains information regarding your credit history, credit inquiries, and public records. While this sounds official and possibly scary, each section has vital information which factors into your credit score.

Credit History

Credit history refers to your record of borrowing and repaying debts. Your credit history could be several years old or could have been established a short time ago. Your credit history will show anything you’ve borrowed from a bank, a credit card company, or any installment loans (student, personal, car payments, etc) and the age of the accounts.

When you pull your credit report, most likely the largest section of information will be your credit history. You need to carefully review your credit history and check for errors and inaccuracies. A great deal of weight in your credit score is based on your length of credit and what’s in your history.

Credit history is an important factor for your report because it’s considered an indicator of future payments or delinquencies. It’s the best way for a lender to get a snapshot of your ability to pay (or not pay) on time.

Your credit history will not only show your open accounts, but also the ones you’ve closed. Each entry will show if it’s a revolving or an installment loan. Additionally, you’ll see a summary of all the payments made on time or the number of days you were delinquent.

A longer credit history with a positive payment record will have the best impact on your overall credit score. This is why it’s super important to make payments on time – not only do you avoid late fees, but it directly impacts your overall credit score.

Credit Inquiries

Anytime a financial institution (lender, bank, credit card company for instance) reviews your credit report, it’s referred to as an inquiry.

Inquiries show on your credit report and can impact your score, although not to the extent that credit history and utilization are weighted. They are divided into two categories: hard and soft. Not very original but hey, it’s easy to remember.

Hard Credit Inquiries

Hard inquiries refer to a financial institution actually pulling your credit. They are reviewing your credit report to decide if you are a good candidate to lend money to, and this will be recorded in your report.

A hard inquiry does impact your credit score. Typically it can lower your score by 2 or 3 points. Not a huge deal, but enough to keep you from trying to borrow from too many lenders. What you do want to avoid is having multiple hard inquiries on your report in a short window of time. This stands out to the lenders you are trying to take on more debt from multiple sources.

The good news with hard inquiries is they typically drop off your report in a short time, sometimes as quickly as 60 days but no more than two years. It is also easily explained if you are shopping for a mortgage and you have multiple lenders pulling your credit to provide quotes for your mortgage.

Soft Credit Inquiries

Soft inquiries are when an institution or business pulls your information but you haven’t applied for credit. Think of this as when a credit card company reviews your information so they can send you a new credit offer. Or a soft inquiry could take place when you apply for a job and the company runs a credit check.

Unlike hard inquiries, soft inquiries do not impact your credit score. They also remain on your credit report for a short period of time.

Public Records

The public records on your credit report are the section where the most serious of delinquencies will be recorded. Think of this section as containing any legal financial information which would be serious enough to be on a public record.

Typical entries to the public record section are items such as bankruptcies, foreclosures, tax liens, lawsuits, and judgments. This is not a section you want to have any information in, but if you have a public record then it’s going to show here.

Public records stay on the credit report for a long time too. Most information is in your report for at least 7 years but can be as much as 10 years.

If you find an error in the public records section, you can dispute it with each credit bureau and in the same manner if you had an error in another part of your credit report.

With so many big factors impacting your credit score and contained in your credit report, it’s yet another reason for you to consistently monitor your information. It’s not unusual to have mistakes and errors within your report and you have ways to dispute them.

Information NOT in a Credit Report

As important as it is to understand the information that’s in your credit report, you should also know the information which is not included.

Your credit report will never contain information regarding your current job status, salary, or employment history. It doesn’t show your financial assets such as checking and savings accounts or brokerage accounts. You also won’t find any personal information such as marital status, race, sex, religion, or national origin.

Other Factors Affecting Your Score

In addition to your credit history, public records, and inquiries, there are two other categories used to determine your credit score.

Credit Utilization

One of the biggest factors in your credit score is your credit utilization. Basically, how much of your revolving credit are you using? Remember, revolving credit is the credit where your payment terms can change each month. Installment loans are treated differently since you have a fixed amount per month. But revolving credit can be used and can change each month.

For instance, if you have 10 credit cards with a $3000 credit limit each, but you only have 2 cards with around $150 balance then your utilization is considered low. The lower your utilization, then the better your score.

Credit utilization accounts for about 30% of your credit score, so it’s worth taking time to understand how you can improve this area of your report.

Lower utilization signals to the creditors you are responsible with credit. While you may have the opportunity to charge quite a bit, low utilization shows them you’re able to keep your balances low even though you have access to a lot more credit.

Your Credit Mix

The number of installment loans and consumer credit card accounts is referred to as your credit mix. Your credit mix is based on your amount of revolving credit versus installment loans.

A healthy credit mix is one where you have both credit cards and installment loans. There’s no perfect ratio, but having a mix of the two will be favored versus only one type of credit.

Student Loans and Your Credit Score

At this point, you might be wondering where student loans fall within your credit report. If you’re a physician reading this or married to one, then it’s highly likely you are carrying student loans. Whether the student loans are federal, private, or a mixture of both, the loans will impact your credit score.

How Student Loans Affect Your Score

How exactly do student loans impact your personal credit score? This is a great question, especially when you consider some physicians are graduating with over $200,000 in medical school debt.

Student loans fall into the “installment loan” category. This means your credit report will show them as an overall amount of what you currently owe, not how much you’ve paid down. You may assume a large amount of student loan debt will automatically decrease your credit score.

Thankfully, a large amount of student loan debt doesn’t mean you will have a lower credit score.

Student loans can impact your credit score in a few ways – sometimes your student loan activity can hurt your score, but there are cases where your student loans can help your credit score too.

Making consistent on-time payments is one of the biggest factors in your overall number. If you consistently pay your student loans on time each month – or if you have late payments – then this is reflected in your report. Depending on how you handle your monthly payments will determine if there’s a positive or negative effect from your student loans.

Since student loans are part of your installment loans, and not revolving credit, then they aren’t factored into your overall credit utilization. So student loans are neither harming nor helping your utilization.

Going into Default with Student Loans

If you are in default on your student loans, then it will show on your credit report. For private loans, the default process can begin as soon as you have a 30-day late payment. For your federal loans, you default when you hit 90 days without a payment. Keep in mind, being in default is different from a deferment plan.

Going into default on your student loans is not an option you want to consider. It will have a major, negative impact on your score. If you’re concerned about being able to make your payments, you could look into the various repayment plans with federal loans.

If you need additional help with your private loans and are concerned about going into default on those, then consider using a site such as You can use Credible to compare rates from many lenders, based on your credit score. It can show you your various options for refinancing your private loans and potentially lower your monthly payment.

There’s quite a bit of misinformation about student loans and their impact on your credit score, which makes it even more critical to understand how your loans are affecting your overall number.

The Overall Impact of Student Loans

Here’s the good news. Having student loans can help boost your overall credit score slightly. If you have a positive payment history then it will show. Student loans also contribute to your overall credit mix since it falls under the installment loan category.

One last point regarding student loans and your credit score – as long as you continue to make payments on time then you don’t have to view student loans as a detriment to your credit score. There are other strategies you can focus on besides student loans if you are trying to improve your credit score.

Improving Your Credit Score

Now that you know what makes up the bulk of your credit report, it’s time to focus on getting you the best credit score you can possibly have right now.

If the credit score showing up on your credit report isn’t the number you hoped to see, there are actually things you can do to improve the number. Hoping your number will improve is not a strategy I recommend. Instead, there are proactive measures you can take to get your score in the best shape.

Improving your credit score is also beneficial prior to making a big purchase. If you know you have a big purchase in your future – such as a house or a car – and you have to use a lender, then you need to make your score as strong as possible and as far in advance as possible. This will help you navigate more confidently as you’re shopping around for lenders.

Long-Term Strategies for Improving Your Score

There are ways to improve your credit score, both for the long haul and in the short term. You’ll want to implement these strategies if you think you may need to secure a loan in the near future.

Pay Your Bills On Time

Paying your accounts on time is critical to keeping your score in the healthy range. Making on-time payments is one of the strongest factors when your score is calculated, and it’s a major component of your credit history.

Getting your finances organized is one of the best ways to stay on top of your payments. You can set up automatic bill pay or establish sinking funds to cover the big costs throughout the year. There are quite a few strategies you can put in place to make sure you pay your bills on time. You should pick the one which works best for your busy lifestyle as a physician.

Keep Your Accounts Open

It may surprise you to know you should keep your accounts open, even when you have a zero balance. Most of us are conditioned to think the opposite way – that if you limit the number of accounts in your name then it means you are paying cash and are more responsible.

Unfortunately, this isn’t how the credit bureaus view your closed accounts.

Keeping your accounts open helps improve your overall credit utilization number, which is a vital part of your overall credit score. If you’ve paid your balances but you’re afraid you might slip into the habit of using credit again, remember you don’t have to keep a physical card.

Short-Term Strategies for Improving Your Score

The long-term tactics to improve your credit score are helpful, but what if you need help with your score right now? Don’t worry, there are other strategies you can use to help give a more immediate lift to your score.

Eliminating Discrepancies

The best tactic is to thoroughly review your credit report and review for any discrepancies. You may notice a car payment was marked as 30 days late when you know you paid it on time. Or you may find a credit card company has an erroneous balance. There could be an incorrect lien reported under your name. There are multiple possibilities for something to show up incorrectly on your report.

If you notice any inaccuracy, then it’s up to you to get it resolved. Trust me, the credit unions will not take it upon themselves to clear your name. You have to be your biggest advocate! And know that mistakes happen all. the. time. It’s impossible for credit unions to monitor every transaction posted to each consumer’s file.

That being said, if you notice an error then you can file with each individual credit bureau to dispute the error. All 3 bureaus will communicate with you throughout the process, once you file your claim. It’s generally a swift process and you can upload all supporting documentation directly to each site. You can potentially have the discrepancy removed within days, thus improving your score.

Not every error can be resolved right away, but it’s worth a shot if you find something which you don’t agree with on your report.

Put Extra Money Toward a Debt

You can use credit utilization to your advantage if you need a short-term strategy to improve your score. If you have any additional money you can use towards debt, then start paying your debts down. While you’re paying your debt down, don’t charge anything new either.

Each month you pay additional money towards your revolving debt, the lower your utilization will be, thus impacting your score in a positive way. You can see results quickly by paying down your revolving debt and lowering your utilization.

If you have any balances on your credit cards or loans then paying down your debts is a way you can quickly improve your score.

Get Your Credit Limit Increased

Along the same lines as paying down your debt, you can increase your score by getting your credit limits increased. This is fairly straightforward. You can call each revolving credit card company and ask for an increase to your credit limit.

The key is not to add any new additional charges to credit cards. With your increased credit limit and keeping the balances the same (or lower) then you can continue to show lower credit utilization.

Making Multiple Payments Each Month

Even if you aren’t able to pay additional towards your revolving debt, you can make multiple payments each month towards your credit card. This shows you have a lower utilization because your balance should (in theory) remain lower throughout the month.

Again, as with paying down debts or asking for a credit limit increase, you want to make sure you aren’t adding additional charges throughout the month whenever possible.

Reduce Your Credit Inquiries

Another immediate action you can take to improve your score is not to apply for any new credit. The more inquiries you have on your report (especially the hard inquiries) then the higher the chances of getting dinged.

Refrain from applying for any credit or loans – store cards, lines of credit, mortgages, etc. – and you will see an improvement in inquiries. Plus the longer you can wait, the more likely the hard inquiries will fall off your report in the meantime.

Become an Authorized User

If you need to improve your credit score or if you don’t have a ton of credit to your name, becoming an authorized user on someone else’s account is a quick way to improve your score.

With this strategy, a family member or very close friend can add you as an authorized user. The beauty of it is you don’t even have to have access to the account number or credit card. You can reap the benefits of the account holder’s higher credit limit and solid payment history.

This tactic works best with someone you trust (this is a big one) and someone who has a well-established credit history with the card.

You can even use this approach with your own children. Did you know as a parent you can set up your kids as authorized users on your accounts, which in turn establishes credit for them? I personally benefited from this when my parents took advantage of this route starting when I was only a year old. As a result, I had a very long credit history established long before I needed to start using my own credit cards.

Building Your Credit

You might think if you don’t have any credit cards then you should still have a high credit score. Unfortunately, not having credit can be as detrimental to your score as having delinquent payments. This is why it’s important to build your credit and try to improve your credit score. Let me explain.

When my parents made me an authorized user on their credit card accounts, not only did it establish a score for me, but it allowed me to build my credit. I was able to show a long credit history through their work. This is one way to build your own credit.

There are other ways of building credit too, such as applying for secured credit cards or even a secured loan. You can also add your monthly bill payment history (such as for electricity, water, natural gas, etc.) to your credit file so you can build credit based on your solid payment history.

If you need to build your credit, there are multiple routes you can take to improve your credit and payment history.

How to Protect Your Credit

There are a few things you should do to ensure you’re doing as much as you can to protect your credit from fraudsters.

Enroll in Trusted ID:

TrustedID is a credit monitoring service that Equifax will enroll you in for free. You can enroll and learn more here.

Pull your credit report.

You are eligible to get one free credit report each year from all three credit bureaus. You can go to, fill in your information, and download your credit report in a few minutes. I recommend getting a credit report for all three just to make sure.

Read it carefully.

Once you get your credit report, read through it very carefully. Make sure all accounts on there are yours. Make sure all of your information is correct. If you see anything that’s wrong, contact the credit bureau immediately and then freeze your account.

Freeze your account.

Should there be a major data breach or your personal information is stolen, by having your credit frozen criminals won’t be able to open an account in your name. However, neither will you without additional steps.

When you freeze your account, you’ll get a pin number to unfreeze if you need to use it for a loan application or something else. Otherwise, no one can access your account or open new accounts without that pin number.

You can actually call the three credit bureaus and do this using their automated system.

Learn more about credit freezes here.

Don’t forget about your spouse and kids. Sometimes, children’s social security numbers are more vulnerable when there is a major security breach like this one because many people forget to freeze their children’s credit files.

Know Your Credit Score, Improve Your Finances

Understanding all the information which makes up your credit score is a great way to empower yourself and understand your finances going forward. When you know what it takes to achieve and maintain a good credit score, then you can use this to help you make better financial choices.

A credit score is only one piece of the overall puzzle when it comes to your financial management. Your score doesn’t have to be the mysterious number that you only review occasionally. Instead, it’s a number you can be familiar with, and have complete control over.