What is Your Credit Score and Why Does It Matter?

financially savvy kids

By K. Bridget Schneider, CFP®, CRPC®
credit score

Have you given much thought to your credit score?  It won’t surprise me if your answer is no.  Most of us know that a bad score can prevent us from getting a loan or credit card.  But many people don’t have any idea what their credit score is, how to improve it, or why it even matters. 

What is a Credit Score?

A credit score or FICO score is a three-digit number calculated by each of the three credit reporting agencies – Experian, TransUnion, and Equifax.  Scores can range from 300 – 850.  Each of these agencies maintains information about your credit activity organized into a report.  Credit reports include information like:

  • The businesses that have given you credit or loans
  • The total amount for each loan or the limit for each credit card
  • How often you paid on time and the amount you paid
  • Any missed or late payments in addition to any bad debts
  • Any businesses that have requested your report within a certain period
  • Your current and former names, addresses, and employers
  • Any bankruptcies or other public record information

Each agency calculates your credit score by applying the information in your credit report to a mathematical formula.  As information in your report changes, your score is updated.  Your information may differ from one credit agency to another so you may have a different score from each agency.  For example, there could be information from one company’s record that doesn’t show on the other two. 

It’s a good idea to review your credit reports on a regular basis to make sure they are accurate and up to date.  Federal law allows you to get a free credit report once per year from each credit reporting company at annualcreditreport.com.  Normally I suggest spacing your request from each of these agencies over the course of a year rather than requesting all three at once.  This gives you the ability to monitor for mistakes in your credit report in addition to monitoring for potential identity theft.  However, because of the importance of accessing credit during these times of COVID-19, the three agencies are now offering free weekly online reports through April 2021.

Why Does It Matter?

Some of you may try to convince yourself that your credit score doesn’t mean much.  Or maybe if you ignore it, it’ll go away.  But, if you have a higher score like 670 or greater, you’ll have far more access and opportunities than with a lower one.  A good credit score says something about your character.  It means you’re responsible, and that you honor your debts.  It means you’re someone who can be trusted.

Who looks at your credit score?  More people than you might think.  Lenders use that score to evaluate how likely you are to pay back a debt.  Credit scores are considered when determining how much you can borrow, how many months you will have to repay, and the interest rate you will be charged.  A higher score may mean a lower interest rate or better terms.  A credit score can be pulled by someone who is considering hiring you or renting an apartment or house to you.  In addition, your score may also be used to determine your rates for auto insurance.


I’ve touched on the basics of credit scores and why they are so important in our financial lives.  I hope this encourages you to check your credit report.  Many credit card issuers provide free credit score access to their cardholders making it easier than ever to check and know your score.  If you feel your score needs improvement, watch for next month’s blog post outlining ways to do just that.

If you simply can’t wait, you may find it helpful to speak with a Certified Financial Planner™ professional.  Be sure to visit our website today or call us at 217-605-8130.  Our mission is to help you make more informed decisions to better your financial position and reduce your financial stress.  

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice. 

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