Keeping Score for a Game You Never Signed-Up For

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Few things are as universal as sports.

The concept of competing and trying to get the highest score is baked into our DNA.

For most of us, these games taper off after high school.

Or so we think.

In reality, we are ALL playing a game we didn’t opt-in to.

This game affects many aspects of our financial life:

• The cars we drive
• Home we live in
• Our cost of insurance

What is this important mandatory game?

The game of Credit Scores.

Credit scores exist to help real estate and car lenders understand your ‘creditworthiness’ - What is the overall likelihood of you paying back a loan?

For them, the goal is to maximize the size of the loan (which is most profitable for them) while minimizing the risk that you don’t pay them back.

Credit Scores are tracked and maintained by for-profit companies that banks and lenders pay to help them make better lending decisions.

So, this game isn’t designed specifically for you. But, your ability to get a high score matters.

Over time, it will:

• Save you money with lower interest rates on cars/homes
• Improve your housing situation by making you a better applicant for landlords
• Get you better credit card rewards since credit card companies view you as less risky

Many articles do a great job highlighting the detailed aspects that make up a credit score, I recommend you read them.

This article is going to go straight for the how:

How do I ensure my credit score is as high as possible? How do I win this game I didn’t sign up for?

First, consistency is key!

Whether it’s a car payment, mortgage, or credit card.

When you get the bill, pay it on time, everytime. Nothing will hurt your credit score more than a history of missing payments.

Second, keep your Credit Utilization under 30%.

When you get your first credit card, you’ll be given a Credit Limit. You want to keep your spending below 30% of that credit limit. Spending too close to your limit tells lenders you push the boundaries with your debt. This hurts your credit score.

If your credit limit is $3,000, don’t spend more than $1,000 on the card at once. Need to spend more than $1,000? Pay off your entire credit card as soon as you go over the $1,000 so it is not maintained on your balance.

Finally, don’t apply for new credit too frequently:

Don’t get a car loan, buy a house, and open a credit card in the same year. Lenders like predictability and too many changes in your financial situation will hurt your credit score.

Get these three habits right, and you’ll be in a great spot on your credit journey.

Want to check the scoreboard?

Your credit card provider likely has tools, but if not you can get free credit score checks through Credit Karma, Experian, and NerdWallet. They all have paid offerings, but will tell you your score for free.

One final note: Though credit scores are important, no one ever achieved financial freedom with just a high credit score. Other concepts like saving, investing, and budgeting matter far more.

This is just a small piece of the puzzle.