Your Credit Score: Why It Matters, When It Doesn’t, and How to Raise It

Credit scores have a huge influence on finances, but they're not an end all be all. Learn how to raise your credit score while building up your finances!

When Your Credit Scores Matter

I have to be honest – based on what I know and seeing how people react to them, I’m not a fan of obsessing over your credit score. 

However, I also realize that it does have a huge impact on most people’s finances. 

Lenders look at your credit score when deciding what rates you qualify for and if you’re looking at a big purchase, like a house, that can mean tens of thousands of dollars (or more) over the life of your mortgage.

Some insurance companies also take a portion from your credit report use it to calculate your premiums

Depending on what industry you’re working in like banking, your employer may check your credit as a precaution

So I get the concern on why you’d be interested in your credit score, but the problem comes up when I see people focused on it like it’s THE number that matters. 

So much so that they are willing to try bad vice and end up harming their finances just to get a higher score. 

I don’t want you to be in that situation. 

The truth is if you’re interested in expanding your options, reducing stress, and building financial freedom for your family, then you need to understand how to make your credit report and score work for you.

In this episode we’ll get into:

  • How credit scores work
  • Ways to raise your credit score (and what bad advice to avoid)
  • How to get your money in a situation where your credit score is an afterthought


Let’s get started!

Raise Your Credit Score While Growing Your Money

Looking to not only improve your credit score, but your finances? Here are some helpful resources!

Thank You to Our Sponsor Coastal!

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How Credit Scores Work

First off, what is your credit score? 

Quite simply, your credit scores are calculated based on what is on your credit report.

Many people, including myself years ago, use credit reports and credit scores interchangeably.  While they are related they are not the same.

At its core, your credit report is a recorded history of your debt payments (credit cards, car and student loans, and mortgages) that allow lenders to determine your creditworthiness. 

Whether you get approved for a loan, how much interest you’ll be charged – these are determined by what’s in your reports. 

And as weird as it sounds, you have three reports (and scores) because there are three credit bureaus tracking that data- Experian, TransUnion, and Equifax. 

Now, what’s in those reports? 

  • Personal information like home address, Social Security number,
  • Loan Accounts, Amounts Owed
  • Payment History
  • Credit Limits and Utilization

Your credit score is a number between 300-850 that each of the credit agencies assigns based on the information on your credit report.

Now no one gave them permission to collect this data nor are those reports consistently accurate (if you want a quick run of the history, check out this episode of Planet Money), but this is the standard used.

Having a ‘good’ or high credit score can be beneficial because you can qualify for better rates with your loans. This is especially significant with your mortgage. 

Which is why a family member reached out to me. With the past year, she had managed to pay off all of her non-mortgage debt. 

An amazing accomplishment and I told her how proud I was. 

Here’s the kicker though – her credit score went down. 

Why in the world would that happen? Because of how credit scores are calculated. When she paid off the last of those loans, that lender closed the account. 

That’s why I’m not a fan of credit scores. They’re not really a good indicator of your financial health.

Ways to Raise Your Credit Score (and Level Up Your Finances)

I’ve seen some horrible advice given where people are trying to ‘hack’ their score, but in the long run, it ruins their finances. 

Such garbage as:

  • opening several new accounts -typically credit cards- just so you can raise your score.
  • Programs that will wipe away bad credit scores overnight

So if you’re looking to raise your credit score because you’re house hunting, I want to take you through how you can build your credit score without having to hurt or harm your long term finances. 

Let’s start with key factors that are in your report and are used to calculate your credit score. I’m going to list them in order of weight.

  • Payment History (35%)
  • Amount of Debt Owed (30%)
  • Length of Credit History (15%)
  • New Credit (10%)
  • Types of Credit (10%)

So if you want to get the best score possible, you need to focus on those key factors. 

Review Your Credit Reports

Since your score is based on what’s in those credit reports, you better make sure they got it right!

With credit scores being used by lenders to figure out some one’s creditworthiness, you would think that these reports have a high degree of accuracy, but you’d be wrong

[More than one in five consumers have a “potentially material error” in their credit file that makes them look riskier than they are.

Now it used to be that you could go to to get your reports from all three bureaus for free every year.

I don’t know if you call it a bonus, but you now do this for free every week

If you find a mistake, you can submit a note through the credit bureau, which means creating an account with them. You also want to reach out to that lender. [30-45 days]

Automate Your Payments

Okay, so your report looks good, we can now move on to the meat – improving your payment history. 

Your payment history by far has the biggest influence on your credit score.

You want a consistent history of paying your bills on time.

If you already have that history, you’ve put yourself in a great spot. If not, don’t worry. 

The first step is making sure you are current with your bills and loans. Here’s where bad advice can come in and ruin you. Some may advise you to prioritize your credit cards over your essentials. 


Instead, make sure you have the critical bills are taken care of – housing, food, necessary transportation, and health. 

We did an episode all about building a better budget so use that to get your finances organized.

You can start building up that history and saving yourself time by scheduling those payments using online bill pay through your bank or credit union. 

I know some creditors and bills do auto-draft, but based on personal experience and hearing from others, I like having the control. 

Avoid Large Balances

The second factor you want to look at is the amount you owe. 

While having regular activity on your cards is important, carrying too much debt can make you appear financially strained, so be sure to pay balances quickly.

Again, scheduling your payments can help you. If you decide to use credit cards, then make sure after you make the purchase you schedule the payment. 

Don’t Immediately Close an Account After You Paid It Off*

Related to the amount you owe is your credit utilization ratio – basically how much of your available credit are you using.

If your credit utilization is high, your score will be negatively affected. Lenders like to see low ratios of 30% or less.

Here’s where a family pursuing financial freedom, you’ll want to veer off this common piece of advice. 

Some horrible ‘advice’ I’ve seen includes opening new accounts just so you can raise your score.

Don’t do it.

Remember we are looking at raising your score without raising more needless risk or temptation.

Never spend more money just to build your credit – it’s a losing game.

Ideally, you should be paying your balances off each month. Less stress. 

Now here’s something to seriously consider when you’re getting a mortgage and going the traditional route with lenders.

If you’ve paid off your debt and you’re focused on a higher credit score for your mortgage, then keep the account open. At least until after the mortgage.

If you close it, your score can go down, which means your lender will probably offer a higher interest rate. 

Once you have your mortgage, you can go ahead and close it.

Your score will be affected, but as I’ll talk more about more in a bit, it may not matter. Remember we’re thinking long-term with your finances. 

How to Make Your Credit Score an Afterthought

So those are the key factors you should be focusing on with raising your credit score. 

I do want to mention in terms of giving yourself more options and a bit more freedom is to have a plan to pay off your debts. 

Getting rid of your credit card debt can be a huge win as you’re not being sucked into those ridiculous interest rates.  

You’ll also put yourself in a position where your credit score isn’t such a big deal.  

As you are knocking out your credit debt, car and student loans, and putting extra towards that mortgage, at each step you’ll be less and less dependent on your credit score. 

Think about it,  when you’re completely debt-free, how important is your credit score now?

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