As I write this blog post, my current TransUnion credit score is 824. It is interesting to see how my score has changed in recent history, and why there were periods where there were dramatic increases or decreases.
But before we go into the details about my credit score, let's look at what a credit score is.
What is a Credit Score
First, there is not only one “credit score.” Multiple companies generate credit scores. These companies take a look at the details in your credit report and use that to generate the score. The three main credit bureaus who create credit reports are TransUnion, Experian, and Equifax. If you are a little confused, don't worry. You don't have to understand how everything works, just the basics in what your score means.
Just know your credit report holds the crucial details about your financial history, and your credit score is a simple way for creditors to rate how risky you are as a borrower.
How each company calculates its credit score varies. Some of them emphasize other aspects of your credit history over others.
Generally speaking, all credit score take the following into account:
- Your credit history length. When was the first time you signed up for a credit card or got a loan?
- Have you missed any payments or defaulted on any credit accounts
- How much debt you have compared to your available credit
- The different types of credit on your report
- Your payment history
- Hard inquiries on your credit report. This can happen when applying for new credit card accounts or loans.
The idea is the higher your credit score, the more likely you are going to pay back what you borrow.
A high score can benefit you in several ways:
- Whether you get approved for a new credit card account or loan
- The interest rate you will pay
- How much available credit you will have access to
There is not a reason you wouldn't want a high score. But having a low score can limit your credit options, or prevent you from being able to borrow money.
List of Credit Scores
There are several different scores, and some use a different rating scale for the highest and lowest scores possible. This range is significant because a high credit score from one company could be considered a lower value using a different score. But, with that said, most credit scores fall in the range of around 300-850.
Below I a list of the major credit scores, and the range for each.
- FICO Credit Score Range: 300-850
- VantageScore 3.0 Credit Score Range: 300–850
- Experian’s Credit Score Range: 330-830
- TransUnion Credit Score Range: 300-850
- Equifax Credit Score Range: 280–850
Your score will most likely vary between companies. But if you see a huge difference, that could mean there is an issue with one of your credit reports.
My Credit Score History
I estimate that for most of my adult life, my FICO credit score was in the 600-750 range. It often fluctuated with our credit card balances, and how much credit card debt we were paying off every month. During the last few years, we wanted to break the debt death cycle, and we saw huge jumps in our credit score when we buckled down to pay off our consumer debt as fast as possible, starting early 2018.
Here is a breakdown of my recent credit score history.
This graph represents my TransUnion credit score that I extracted from my Capital One credit card. I was only able to grab data starting from March 2017.
We took on a significant credit card debt in late 2017. This debt made my credit score down from 764 to 646. In 2018 we pushed as hard as possible and paid off about $50,000 of credit card debt. Paying off this debt increased our credit score from 646 to 824 over that time frame.
In 14 months, our credit score increased by 178 points. At the end of 2018, my credit score increased by 66 points over one month.
My TransUnion credit score is currently at the “excellent” level (824). The max credit score for TransUnion is 850 points.
I'm not sharing this data to brag about my credit score because honestly, it is ultimately bullshit (I explain why below). But it is interesting to see how quickly my credit score recovered once I started paying off massive amounts of credit card debt.
No surprise, but the credit card companies love how much debt I've accumulated and paid off. I feel like I'm bleeding in a pool with a bunch of piranhas.
How I got an Excellent Credit Score
Some of the reasons I have an excellent credit score are great. However, the main reason I have such a high score is my addiction to credit card debt, I've struggled with my whole adult life.
The only thing useful from a high credit score is your ability to take on debt and get better interest rates.
I think there was only one time in recent history where I forgot to pay the minimum amount on a credit card, and I got hit with a late charge (but luckily it didn't show up on my credit report). Outside of that one time, I haven't missed a payment and often would pay down our credit card balances with large sums of money (which happened when we were trying to aggressively pay down our credit card balances).
Generally, if you don't max out your allotted credit card limits, and pay your accounts on time, your credit score should increase with time.
How to Check Your Score
You can check your credit report for free at annualcreditreport.com. That site will allow you to view your credit report from all three major credit bureau's once per year for free. However, they will not provide your credit score.
I recently discovered a free service called Credit Karma that will not only allow you to access your credit reports for free, but you can view your credit scores as well. They will also monitor your score + credit reports for free, which is incredibly valuable. I plan on using Credit Karma regularly, and I suggest taking a look at their free service.
Another way to get your credit score for free is through a credit card that offers this service as a benefit. I know of two credit cards that I have, that provide this service: Discover and Capital One. And I think there are many other credit cards out there.
Being able to see your credit score through your credit card is an excellent perk. There are other companies out there that will offer more details in tracking your credit scores and reports, but Credit Karma seems to provide what I need, and it is free.
Is Your Credit Score Important?
If you need to borrow money, for a car or a mortgage, having a high credit score will help you secure a larger loan with a lower interest rate. Having a high credit score can also help you score a credit card with more benefits or a larger credit limit.
But having a high credit score doesn't benefit you directly if you are trying to stay consumer debt free. A high credit score could mean you have a credit card debt problem and are spending more than you make. That isn't always the case, but it is something to keep in mind. Just don't let your good credit score go to your head!
You see credit card companies love people who go into
Stop Making Credit Card Companies Rich!
Instead of paying credit card interest, it is better to have your money pay you! This extra income can be either through dividends, stock appreciation or starting a business. Even if you have a mortgage, which is usually considered “good” debt, you end up paying a massive amount in interest charges over 30 years.
For me, credit cards are useful in charging expenses that I pay off every month through our monthly YNAB budget. Having a great score gives me options in switching credit card companies with different rewards, without having to worry about getting declined or having a low credit limit.
If you do use credit cards, you want to make sure you pay them off every month with cash, before you get charged interest. That way you can earn free rewards, and avoid paying interest on revolving credit card balances.
Another benefit in using credit cards to pay your monthly budget expenses is that it will help improve your credit score over time. Maybe you aren't in the market today to buy a home. But if this is something you may want to do in a few years, it is easier to increase your credit score when you have more time.
Generally, though, I wouldn't worry too much about your credit score unless you are recovering from a financial disaster (like bankruptcy) or are going to get a mortgage in the next few years.
What's more important than your actual credit score, is what's on your credit report. Credit card and loan fraud is a common issue, and if this happens to you, it can drastically hurt your credit score. It also can be challenging to get these off of your credit report.
Starting a Business
One benefit in having a high credit score is that if you want to start a business that requires more capital than you have cash on hand, this gives you access to line of credit accounts that have lower interest rates than most credit cards.
Outside of a mortgage, this is the only other debt I will consider taking on in the future. But you shouldn't take this decision lightly. It's always better to save cash for starting a business than taking on debt, but there might be times where this makes sense. Especially if you are confident you can generate profit from your new business and pay off the debt as soon as possible.
In 2017, “some” of the debt that we took on partly covered the initial expenses in starting a salon business that my wife Andrea and I manage. It took a lot of capital to design and create a logo, purchase hair styling booths and make sure we had enough money available to cover the monthly expenses (lease, utilities, etc.). We were reasonably confident Andrea would generate profit right away, but we weren't sure how much. And we also had to consider that covering the base expenses of the salon would come from the income she generated from her services.
Going into debt to start the salon business was well worth the risk. We paid off over $50,000 of consumer debt last year and are now entirely credit card debt free. And we are bringing in consistent profit every month from the salon.
I only mention this to balance out the idea that there are good reasons to pursue a strong credit score. If I didn't have a good credit score at this time, I don't think we would have been able to launch the new business. We would have missed out on generating additional income, and our net-worth wouldn't be able to grow as fast as it is now.
Keeping an eye on your credit report is something we all should regularly do. We at least need to keep an eye out for malicious activity, which could point to identity fraud. Pursuing a strong credit score can also open up options to use the best credit cards to charge your monthly expenses, and allows you the opportunity to have capital available to start a business or get a better rate on a mortgage.
But don't let your strong credit score feed your ego. It's value is secondary. In fact, if you don't take on any debt, you might have a low credit score!
Just because you have an excellent credit score does not mean you should spend more than you make and rack up credit card debt. You can have a high credit score and be financially miserable at the same time if your net worth is decreasing every month.
What's your outlook on credit scores? Do you check yours regularly?