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Understanding Your Credit Score

Nov. 23, 2021 Blogging for Change

he higher your credit score, the lower the risk you represent to the lender. That’s important because the best terms and interest rates will be offered to applicants with scores in the higher ranges.

While two people with very different credit scores might both be offered a loan, for example an auto loan, the person with the low score might be required to have a substantial down payment and be offered a much higher interest rate than the individual with the high score. The person with the lower credit score is going to pay more for the use of credit than an individual with a high score.


FICO, the company that created the most widely used credit score, has a score range of 300-850. FICO provides the following ranges as a guide:

Credit Score RangesRating
740-799Very Good

Lenders usually have internal lending guidelines and set their own ranges for what they consider to be “poor,” “good,” or “excellent” credit scores. Their ranges may, or may not, match FICO’s guide.


While the exact formula that FICO uses to calculate a credit score is proprietary, they have identified the five key factors, in order of how they are weighted:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • New credit: 10%
  • Types of credit used: 10%

Bear in mind that your credit score is a snapshot in time and may fluctuate from month to month depending on your circumstances. Don’t focus on the exact score from month to month, but rather where your number falls within the ranges. 


If you don’t have a recent credit score, it’s a good idea to get your current number – especially if you’re about to make a major purchase and don’t want any surprises. You have several options for getting your score.

Check first with financial institutions, creditors, and commercial companies where you have accounts. They often provide credit scores to customers for free, sometimes with a requirement that you sign up for certain services like identity monitoring. If you don’t have access to a free credit score, you can purchase your credit score from FICO at


FICO and other organizations that issue credit scores calculate your number using information from your credit report, which is handled by three national credit bureaus – Experian, Equifax, and TransUnion. To better understand your credit score, you’ll need to review your credit report.

You can get a free copy of your credit report from each of the credit bureaus once per year by submitting a request through Typically, you can only get a copy of each credit report for free one time per year, but there are exceptions:

  • If you are denied credit, the Fair Credit Reporting Act requires that credit bureaus provide you with a free copy of the credit report used in the decision.
  • Due to the COVID pandemic, the three credit bureaus are making free credit reports available weekly through until April 20, 2022. This access has been very helpful for making sure creditors are reporting accurately based on various COVID pandemic relief requirements of the federal CARES Act and American Rescue Plan.


Once you get your credit reports, review the information for each credit entry carefully to check it for accuracy. If any information is inaccurate, you can dispute it through the credit bureau’s website. If you see items on your report that you believe are fraudulent, you could be a victim of identity theft. If you believe you are a victim of identity theft, visit the  Federal Trade Commission website to learn how to recover.


If you have some negative items in your credit report, those items will most likely not be removed for at least seven years from the date the negative activity occurred. Making payments on time going forward will continue to improve your score, and lenders typically give greater weight to more recent history. 

It might be tempting to close some of your credit accounts, but in most cases, keeping credit accounts open is likely to help you, not hurt you. While potential creditors do look at the amount of outstanding credit you have available, they also look at the length of your credit history, as well as your credit utilization. Closing older, lesser-used accounts actually can impact your score in two ways:

  1. by decreasing the length of credit history and 
  2. by increasing the percentage of your total credit you are using. 

New credit, which is one of the factors used in calculating the score, includes the number of recent account inquiries as well as the number of new accounts opened.


If your credit score isn’t in the range you’d like, there are no shortcuts to improving the number immediately. However, applying good credit practices over time can help bring up your score. Here’s are key steps to take:

  • Make payments to creditors on time and in full. This is the most impactful way to improve or maintain your credit score. Make at least the minimum payment, if not more. Be sure to make payment by the due date because payment history is 35% of your credit score calculation.
  • Take care of any delinquent payments. If you have missed payments that are considered delinquent, it is important to make up those payments as soon as you can and stop the reporting of delinquent status. While not all creditors report on time payments, they do report payments that are delinquent. They also consider the length and severity of delinquencies.
  • Make sure that you aren’t using the full credit limit available to you. The amount of money you owe relative to your credit limits on revolving debt is called your credit utilization. It makes up 30% of your credit score calculation. A high level of credit utilization can push your credit score down, even if you are paying off your balances in full each month. If you have high balances compared to your credit limit, focus on paying them down to improve your credit score over time.
  • Report different types of financial data. For a fee, alternative credit-building services can provide the credit bureaus with your payment history for expenses including rent and utilities, and that can make a positive impact on your credit score. Be sure to review pricing to ensure these services are worth the cost within your circumstances. 


For consumers who are struggling with credit card debt and have a low credit score, a debt management plan can help you rebuild credit and contribute to improving your credit score over time. 

While there is no immediate way to get a higher credit score, MMI has found that consumers who enroll in a debt management plan and follow it see improvement within the first year, then see continuing gains as their payment history improves and their credit utilization goes down.

To determine how a debt management plan might impact your credit score, MMI reviewed multiple years of anonymized data for clients we have worked with. Here’s what we found:

  • Clients who enrolled in a DMP – and stayed enrolled – had a 43-point average increase in their credit score over the first year.
  • Those clients saw a cumulative 62-point average increase in their credit score over two years.
  • Clients who completed a debt management plan saw their credit score increase an average of 88 points

MMI clients who received one-time debt counseling, but who didn’t do a debt management plan, also saw improvements, although not as much:

  • An average 23-point increase over the next year.
  • An average 37-point increase over two years.


If you’re struggling with credit card debt and looking for a way to improve your credit score, we can help. A debt management plan sets up a strategy for you to make consistent monthly payments to your creditors. Some creditors may choose to bring accounts enrolled in a debt management plan to “current” status despite previous missed payments, and that change is shared with the three credit bureaus. 

Making consistent payments, stopping delinquent status, and paying down credit cards will all make a positive impact on your credit report and your credit score over time.

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