The Smart Girl's Guide to Credit Scores | Credit 101 (2024)

This comprehensive guide to credit scoresleads you step-by-step through the world of credit so you can finally separate fact from fiction. More importantly, you’ll discover why credit scores DO matter!

This post may contain affiliate links.Read my full disclosure policy here.

This post is sponsored by FICO, however all opinions and disagreements with Dave Ramsey over credit scores are 100% mine.

As much as I love the in’s and out’s of saving money, I’m definitely no expert. Even though I’m always looking for ways to manage money better, my eyes still glaze over with words likecredit score, investments, and depreciation. They might even fall out of my head if they’re all in the same sentence!

Instead, I’m more about the practical, down-to-earth ways to save a buck—like how to cut costs at the grocery store, or ways to decrease your monthly phone bill. But I also want to be knowledgeable about other aspects of my finances too.

The last few weeks I’ve been learning everything I can about credit scores so I know exactly how they work, whataffects them, and answer the big question every Dave Ramsey fan is asking, “Does it really matter?”

Here’s what I found!

The Scoop onCredit Scores

Basically, your credit score is a “scorecard” used by banks and lending agencies to determine how likely you are to default on a loan. Scores range from 300 {bad} to 850 {out of this world amazing}. Obviously, the higher the score, the better!

There are three main credit bureaus—Experian,Equifax, andTransUnion—andan “accepted” credit score,also called your FICO® Score.Your FICO Scores are based on the information housed at the credit bureaus. The bureaus all work the same way, but usually the scores between them are different. This is because not all of your credit history is necessarily reported to all three bureaus.

NOTE: When applying for a mortgage or loan, you don’t get the option of which credit bureau they use. That means you want to make sure your scores from all three are good!

Now, I say accepted in quotes above because there are somecompanies who provide your score for free, but they don’t provide your FICOcreditscore. I had no idea there was even a difference, but apparently this is super important!In fact, when I tested it out, I found the free version quoted my score as 60-70 points less than FICO.

Here’s a list of authorized FICO retailers to ensure you are getting the correct score.

Why Your FICO Score is Important

Because your credit score is a snapshot of your likelihoodto pay on a loan {like a car or mortgage}, it has a huge affect on the loanyou can get.

For instance:

• An excellent credit score will give you a lower interest rate, thus saving you thousands in long-term interest. Yay!

• A bad credit score will give you a higher interest rate. Boo! It may also require an extra deposit or result in you being denied for a loan.

Loans aren’t the only thing impacted by your credit score though:

• Your landlord will probably check your credit score before he or she decides to rent to you. We never accept anyonein our NY rental without looking at credit scores first, and have denied tenants withtoo many outstanding balances and low scores.

• Insurancepremiums can bebased on credit scores in addition to yourdriving record. Yep, it’s true!

• If you want to earn decent rewards off a credit card, your scoredetermines which ones you qualify for.

Overall, it affects a lot of important decisions…enough for me to say it’s better to have GOODcredit than none at all. So….why all the haters?

3 Misconceptions to Have “Good” Credit

Because credit scores work hand-in-hand with loans, they are often associated with debt. In fact,Dave Ramsey even calls credit scores an “I-Love-Debt” score. He’s certainly welcome to have that opinion, but I want to show you why that view is false.

1. You don’t need tocarry debt to have good credit.

I recently saw a Youtuber say shewanted good credit, so she got a credit card to paythe minimum balance every month. I literally screamed “NOOOO!!!!” at the screen. This is why Ramsey has fuel for his fire—because we don’t really understand what it means toearn and maintain good credit!

Here’s the truth:You should neverEVER incurthousands in credit card debt to “get” good credit.I treat my credit card like cash, pay my balance off every month, and have never paid interest in the past 10 years I’ve owned a card. This has resulted in a 800+ score.

Does this mean you can’t use a credit card to get a good credit history? Ofcourse you can! You just don’t need to carry a balance from month to month. In fact….I beg you not to. When the bill comes, pay it. Pay it before it comes. Paying on time, in full, is great for your credit!

2. You don’t need to charge every expense to get good credit.

Guess what? You could literally put ONEcharge on your credit carda month, pay it off, and that would be good enough for your credit. Charging more won’t necessarilyhelp yourcredit score. Nope, not one bit!

Instead, I recommend you choose just one expense {like utilities or gas} to put on your credit card until you get used to paying off what you charge.This is also a good idea for those who are cash-only, but still want to have a good credit score.

>>More tips to build your credit score from scratch<<

3. More credit cards doesn’t necessarily give you better credit.

Credit scores take into accountyour available credit {how much unused credit you have} when calculating your score, which is also called your credit utilization rate. So while a variety of cards show your creditworthiness,you still don’t want to have too many.

Here’s why:

• For one, you’ll be tempted to use more of them and possibly rack up more debt than you can pay off. This negatively impacts your credit utilization rate, because the more you charge, the less available credit you’ll have.

• More credit applications result in more hard inquiries, whichcould alsonegativelyimpact your score.

Sohow many credit cards is too much?Well,I personally know someone who has sixteen credit cards and maintainsexcellent credit. But agood rule of thumb is only keep the credit cards you use regularly,and try to keep your balances low.

What is your opinion on credit scores?

FICO is the company that invented FICO® Scores, which have been an important component of lender credit criteria for over 25 years. In fact, FICO® Scores are the credit scores used by 90% of top U.S. lenders. They make lending faster & fairer, giving consumers the ability to access credit and even save money on interest. Learn the real facts about FICO credit scoresHERE.

Disclosure: Some of the links in the post above are affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers.Read my full disclosure policy here.

Please note that a commercial relationship exists between our site and FICO that may include FICO providing us with product and other forms of payment. The views of the author(s) herein do not necessarily reflect the views of FICO. FICO is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act, and does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” credit records, credit history or credit ratings.