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Your Credit Report Part 2

Understanding Your Credit Score.

By James R. Cook, CFP®
Senior Manager, Large Employers & Mergers and Acquisitions

In last month’s Tips & Tricks we reviewed credit reports. In addition to your credit reports, you also have a credit score. Few people know their credit score, and even fewer know what it really means or how it is calculated.

Get Your Credit Report. You can start the process of getting your free annual credit reports at

What most people do not realize is there is not just “one” score. Each of the credit reporting agencies calculates a score based on the information that they report using a propriety formula, while some financial institutions calculate their own ratings.

The most common scale is an 850 point scale, though again, other scales exist, depending on the agency. Generally a score above 720 is considered a good score.

The calculation for a credit score is complex and has a number of variables, but some of them are:

  • Your payment history, specifically, a history of late or non-payments
  • The total amount of your current debt related to your income
  • Your credit usage, which is essentially the ratio of the your total current debt over the total amount of your credit limits, e.g if the total credit you have available is $50,000 and you have current balances of $20,000 you are using 40% of your available credit.

If you discover that your credit score is lower than you would like it to be, it is a good idea to take another look at your credit reports to see if there are issues that you can begin to correct. There are a limited number of things that you can do to raise your score quickly, but knowing some of the things that negatively impact your score can allow you to make a plan for improvement over time. Here are a few items to consider:

  • Do you have accounts with balances that are near the maximum? Paying down your balance can help improve your score.
  • Do you have old accounts that you no longer use? Sometimes excess credit availability can have a negative impact. If you opened up a charge account years ago to pay for a one-time purchase like an appliance or other home item, consider closing the account.
  • Do you have a history of late payments? There is no quick fix to this problem, but taking a disciplined approach to paying at least the minimum amount on-time every month will help improve your score.

Now that you know more about your credit reports and credit score, be sure to order your free reports and review them carefully. If your report is less than desirable or your score is lower that you’d like, make a plan to address any issues and begin working to improve them.

If you need some help with debt management or other financial issues, call MMBB @ 800.986.6222, and ask to speak with one of our Certified Financial Planner™ professionals. Financial Planning is just one benefit of your membership with MMBB. Take advantage of all that MMBB has to offer.

Read Part 1 of this article.