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How to check your credit score and what to do about it

How to check your credit score. The difference between a score and a credit report. Ranges for good and bad credit scores. Action steps to improve your score.

Ramit Sethi

You know what’s one of the scariest things in the world to me?

No, it’s not the rising trend of the male romper.

And it’s not even the fact that people take awful financial advice about avocado toast seriously.

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It’s a study from Princeton:

“[The] study found that as many as 34 percent of Americans have never even checked their credit reports. Princeton Survey Research Associates conducted the research in April, polling 1,000 adults.”

What. The. HELL?!

That means that nearly 110 MILLION Americans have never checked their credit score despite the fact that it’s essential for responsible financial planning — not to mention it’s an incredibly easy way to get started on earning a Big Win (i.e. IMPROVING your credit score).

It’s especially ridiculous when you consider the fact that improving your credit score is potentially worth nearly $100,000.

Consider two people:

  • Abby, who has great credit (760)
  • Derek, who has poor credit (620)

In their 30s, they decide to buy houses of similar prices. How much do you think they each pay?

Spoiler alert: Not the same amount.

Check out the graph below:

Screen Shot 2017 06 21 at 11.40.03 AM
Source: MyFico.com. Data calculated in June 2017.

Because Derek has poor credit, he’ll end up paying nearly $68,000 more in interest than Abby — whose credit is awesome.

And yet, nearly 100 million Americans are willing to forgo checking their credit score because…why? Why won’t people take that simple step and get on their way to living a Rich Life? From my experience, it boils down to two reasons:

  1. People don’t know HOW to check their credit score
  2. People feel guilty about their credit situation

Today, I’m going to show you the exact steps you can take to address these two issues — and how you can even get started IMPROVING your credit score.

How to check your credit score

Before we get started on how exactly you check your credit score, there’s an important piece of information you need to know: Your credit score is NOT the same thing as your credit report.

Many people conflate the two or seem to think that their credit report will provide their credit score information — when this couldn’t be further from the truth.

Here’s a detailed description of both as well as how exactly you can access your credit score:

What is a credit report?

This is an all-inclusive report detailing your credit history. It’ll include information such as your:

  • Loan history
  • Accounts opened and closed
  • Payment history
  • Credit balance

You’re entitled to a free credit report each year, per the Fair Credit Reporting Act. Generally, though, you’d want to request one of these if you think you’ve been unjustly denied anything due to your credit.

To get a free credit report, there are three major companies that will provide them for you:

  1. Equifax
  2. Experian
  3. TransUnion

It doesn’t matter which one you use, they’ll all be able to provide you the same information. The report is the data used to calculate your credit score.

What is a credit score?

Your credit score is an actual number — the same number that renters and lenders will utilize in order to assess how safe it is to have you as a customer.

And while your credit score and credit report are two entirely different things, your score comes from the information in your report. The actual number is determined by the following information and their associated weight in relation to your score (credit score formula courtesy of Wells Fargo):

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • How many types of credit in use: 10%
  • Account inquiries: 10%

Checking your credit score is incredibly simple. There are a seemingly endless amount of sites and services out there that’ll provide you your credit score, but here are a few notable ones that will provide you your score for free:

  1. Nerdwallet
  2. Credit Karma
  3. Mint

“My credit score is XXX. Do I have good credit?”

Your credit score will be within a range of 300 and 850. The range determines whether or not your score is solid — but a good rule of thumb is the higher your credit score, the better you’re off.

Below are a few ranges from Experian and what it may mean for you.

  • 850 – 800: This is a fantastic spot to be with your credit score. Rest assured, if you’re here, you’ll have no problem securing a loan or a good down payment percentage on your home.
  • 799 – 740: Though not the top spot, this is still a very good area to be. You’ll be offered great rates here.
  • 739 – 670: This is an okay credit score range — though not great. With a few small changes, you could easily bring the score up. Focus on closing unused accounts and consolidating loans first.
  • 669 – 580: This is when you should start worrying. If your credit score is here, you’re considered a subprime borrower and won’t get very good rates at all. Reduce your debt load and work on your payment history in this band.
  • 579 – 300: Here you’re likely not to be considered for a loan at all and will run into numerous issues with things like getting approved for apartments. You should find a non-profit credit counselor and ask for help.

If your credit score falls below 580, you’re going to want to do all you can to improve it ASAP. Below are my absolute best resources on getting out of debt and improving your credit score:

Stop feeling guilty about your credit score

One of the most common reasons people don’t look into their financial situation — whether it be through their credit scores, bank statements, or credit card bill — is simply because they feel guilty about it.

It’s called the paradox of guilt and many people don’t even realize it’s happening to them before it’s too late.

After all, how often have you talked to a friend about working out, saving money, or studying for school and heard them say something like, “Yeah, I know I really should be doing that but…” followed by some lame-brained excuse as to why they’re procrastinating on something important?

“I know I really should be doing that” is just code for “I’m not going to do that at all.”

It’s the same with people in credit card debt — many don’t even know how much debt they have! They’d rather avoid their statements and bury their head in the sand than face the reality of how much they owe.

Which is why if you truly want to stop feeling guilty about your credit score, the first step is being honest with yourself and facing the truth: Your credit score sucks.

BUT there’s another bigger truth you need to understand:

You can ALWAYS make your credit score better.

It’s true. It doesn’t matter how bad your credit score is or how much debt you’re in. If you’re willing to follow a few straight-forward systems and apply some patience, you’ll be able to turn that credit score around. I promise you that.

I want to show you an exclusive video from my premium course, Success Triggers. It’s about defeating guilt and enjoying the things that make YOU happy.

After all, we’re constantly told what we should do. It’s important to reward ourselves when we work hard and earn something.

 

Improve your credit score — and live a Rich Life

Once you’ve checked your credit score, congratulations! You’re well on your way to improving your credit score and living a Rich Life.

But your credit score is only a small part of that journey.

Download a free copy of my Ultimate Guide to Making Money to learn my best strategies for creating multiple income streams, starting a business, and increasing your income by thousands of dollars a year.

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28 Comments

 
  1. Griffin

    That literally took 5minutes. Easy. updated my Mint.com account with the info.

    I am hoping that by using your link you will be getting some stat’s about the IWT readers in terms of score, average debt possibly by age. Would be really interesting to see.

    I like to think that most people following you site would be ahead of avg. person?

    • Ramit Sethi

      In some cases, yes (e.g., likelihood to earn more $ instead of cutting back on lattes, average salary, etc). But the site has grown so much that in some areas, we are neck-and-neck with national averages. From extensive data collection, I also think IWT has better-looking people than most psychology/money sites. If this is interesting to people, I’ll share more data in a future post.

  2. Jessica

    “You can always get your credit report free, once a year, at annualcreditreport.com.”
    Just want to add that you can get it for free once a year from EACH of the three credit bureaus. I have reminders set up spaced every four months; for example, yesterday I got an e-mail saying I could check my Equifax credit report again.

    Credit Karma is great. I also have a reminder e-mailed to me to check my credit score once a month.

  3. Christian L.

    Ramit,
    I wonder if people just don’t value checking their credit. Rather, I think the people who do check their credit just don’t realize how valuable it is, how much it can save them on major investments.

    Let’s hope those are the people reading this piece.

    -Christian L. @ Smart Military Money

  4. AO

    Question — about how old does your average age of credit need to be to be considered an ‘A’ grade? That’s my only non-A area and I think it’s because I’m in my mid-twenties so my average average age of credit is only 5 years. Just curious!

    • Ramit Sethi

      Length of credit history is 15% of your credit score. Don’t worry too much. Just focus on doing the 3 steps I cover in “How to raise your credit score” and it should go up over time.

  5. Erika

    THANK you. I recently made this point in a discussion on Reddit’s /r/frugal group, and got shouted at and moderated down out of sight. Just for suggesting that working to maintain a good credit score could save you a lot of money in the future.

    And don’t forget, a lot of employers are checking credit scores now as part of their hiring procedure. Not to mention apartment rentals. Even if you don’t use your credit score to borrow money, it has a very significant impact on your life in These Modern Times.

    I know “certain financial advice personalities” advise you to never borrow money and brag about their credit score being zero. But that’s unrealistic for most people who have to, like, get jobs and rent homes.

    • Ramit Sethi

      I know. I love delusional people who say, “YOU DON’T NEED CREDIT!! YOU’RE JUST SUPPLICATING TO THE PATERNALISTIC CREDIT SYSTEM IF YOU DO!!!” Ok, dude, come talk to me in 10 years when you buy a house.

  6. Fred

    Ramit,

    I’m sorry but if you even have to THINK about your credit score, much less WORRY about it, and even much, much less WORK ON IT. Then my friend you are just a pawn being played in someone else’s game. Because if you’re still out there buying houses and (heaven forbid) even cars on credit then you haven’t achieved even the most basic level of financial freedom – being able to buy what you need with cash. And you’re still just going around the rat race with the rest of ’em.

    If your readers can’t afford the car or house they are looking at (with cash) then PLEASE just advise them not to buy it! Don’t advise them to work on their credit score so the purchase (of the thing they can’t even afford) can cost them less in the long run, they just need to find a more affordable “thing” in the first place. And swallow their pride if necessary until they get some real cash flow going (possibly using your techniques) at which time they can look into the big shiny car or house again.

    You basically teach alternative ways of looking at your finances and income, alternative ways to approach your boss for raises or different ways of looking at ones life to find income producing side jobs. Sooo, why aren’t you also teaching people alternative ways to buy the things they need such as houses and cars? People need to think differently about how to purchase a house and a car, the two biggest purchases most make. People absolutely should not be buying cars new or even from a used car lot – the mark up is too big. And people absolutely should not be buying 100k+ houses if they can only scrape together a few grand for a down payment. There are other ways and your people need to be taught them.

    Thanks,
    Fred

    (And yes I do own my own home along with two nice vehicles and more (all free and clear). You have to learn how to THINK differently then the rest of the masses. I’d be delighted to describe how I was able to pull this off in detail to anyone who seriously wants to know and learn.

    • Raul Felix

      Maybe it is easy to pay cash for a house if you in live in middle of nowhere where house cost $75,000. But some of us like living in places that don’t suck, places where even a decent starter home costs $300,000. I think wanting to have great credit in order to get a good APR after you have 20% to put as a downpayment is a reasonable goal to have.

  7. Jessica Kihara

    Thanks for sharing your recommendation and discount for Credit Karma. I agree, most of the credit score companies look incredibly shady – it’s nice to get a first hand recommendation from someone you can trust.

  8. Ross

    Are there any Canadian equivalents to these sites.

    After checking, they don’t offer full Canadian services.

    Irish Expat living in Canada and not sure what to trust.

    • Miranda

      Equifax DOT ca and Transunion DOT ca. I’ve kept an eye on my credit with them for the last 5 years or so.

      Hey Ramit, still waiting to read the results of the August 1K giveaway! Come on, ya big kooky weirdo!! 🙂

      Miranda
      a Little Kooky Weirdo

  9. Iva

    There is no credit score check, as far as I know, when taking on a loan for a house in Croatia. Everybody gets the same (lousy) interest rate, depending on the bank and its current offers.

    So me paying my credit card bill religiously doesn’t get me any better deal.

  10. Joe Feyas

    Great article, it brings to mind the old cliche “Penny wise, pound foolish”

  11. IS

    I’m curious about your opinion on a subtle point of a credit score. I have a high score but not quite in the top range as listed in the chart. I checked my score on CK and it seems the main flaw is that I still have an open student loan. I am in grad school (funded) and that loan is in abeyance. So far, I have chosen not to pay that loan off because I can invest the money instead. Does it make more sense to just go ahead and pay it off? Thanks!

  12. BB

    In case this is helpful to anyone: I got curious about the difference between the three types of scores listed on CreditKarma: TransRisk, Auto Insurance Score, and VantageScore. For instance, my TransRisk score is quite high, but the others are not so great.

    I found this info on the site – basically, the VantageScore is a newer generation model. Unfortunate for me, as it gives me a MUCH lower rating (A to C).

    http://www.creditkarma.com/about/faq#nationalpercentiles

    Hope this helps someone.

  13. Cherleen @ My Personal Finance Journey

    I would be glad to say that my husband and I have better credit scores since we paid off two of our credit cards and an outstanding loan. However, we are still aiming for a higher score so that we can get lower interest rate when we aply for a home loan next year. We are looking into paying off another bank loan and his student loan before the year ends.

  14. Greg Digiovanni

    @Jessica – “I have reminders set up spaced every four months; for example, yesterday I got an e-mail saying I could check my Equifax credit report again.”

    That’s great advice! So you can essentially get your credit report all year long. I know that the agencies each report differently but at least you can get a rough idea.

    Thank you!

  15. Cathy)

    I find it really interesting how much time and energy Americans choose to/have to put into managing their credit score. Not sure about elsewhere in the world, but in Australia, the bank has (pretty much) one rate for everyone. You either get a mortgage loan, or you don’t. (There are a few small exceptions) And having a bunch of credit cards counts against you, not for you. Even if they’re at zero balance, they count against your ability to repay. is it just America that has this strange obsession?

  16. 5 Money Mistakes to Avoid | One Smart Dollar

    […] three reporting agencies.  Want to know more about how having good credit helps you?  Check out Ramit Sethi’s blog on why maintaining your credit is […]

  17. Sophie

    I’d like to read more about “Starting to invest early”. Are there posts about it?

  18. Credit Score | Million Mile Secrets

    […] For example, if a retired person with a credit score of 830 applies for credit cards and finds her score has dropped to 790, she is no worse off because her credit score still gets access to the lowest interest interest rates.  Ramit Sethi of I Will Teach You to be Rich has a similar chart in his post on the importance of a good credit score. […]

    • Super Fax

      Well-Explain Well-Thinking and brilliant twist in message on how to think about free credit report topic! Awesome post, Leslie!..>

  19. Super Fax

    Well-Explain Well-Thinking and brilliant twist in message on how to think about free credit report topic! Awesome post, Leslie!..>

  20. Matt

    Great Post! Thanks Ramit

  21. vikas

    That’s great advice! So you can essentially get your credit report all year long. I know that the agencies each report differently but at least you can get a rough idea

  22. Rhonda Obrien

    Though there are many so called financial advisor giving awful advices about credit score and building it again. Ramit has again able to give a best credit advice that I was looking for. Nerd wallet, credit karmas and other website are just giving right service to people. But before going for anything a good understanding of credit score and checks are important. You will certainly get help here about your concern.