I bought a new car this week.
She is a gorgeous mid-life-momma metallic white.
Her name is Pearl. Obviously.
After negotiating the price, getting a fair value for my trade-in, and politely declining every add-on offered to me, we got to the next part of the process:
Financing.
The finance manager pulled my credit and came back with a 4.99% interest rate.
Not bad.
And while I’ve known for years that I have excellent credit, sitting there at the dealership reminded me of something:
A good credit score isn’t just a number. It’s buying power.
I’ve spent decades paying my bills on time, keeping my debt manageable, and generally doing the boring financial things you’re supposed to do.
None of that feels particularly exciting when you’re doing it.
There’s no confetti when you pay your credit card bill on time.
(Though if you want to do that, Gladys, have at it. Why not?)
Nobody sends you a trophy because you’ve maintained excellent credit for twenty years.
But then one day, you need to borrow money.
And suddenly, all those boring financial decisions matter.
Because the difference between excellent credit and mediocre credit can mean hundreds, or even thousands, of dollars in additional interest.
So let’s talk about that little three-digit number following you around.
What it means.
What actually affects it.
And most importantly, what it can cost you when you don’t take care of it.
Buckle up!
Shocker – I Didn’t Always Care About My Credit Score
Keeping it real, I did not know what a credit score was, why it mattered, or even how my financial behaviors affected it.
In college, I ran up my credit cards, carried balances over month to month and by the time I graduated, I had about $2,000–$3,000 just in credit card debt.
I saw credit cards as a way to buy things I wanted, but didn’t have the cash for, and umm, what was the big deal?
I’d pay it off eventually.
Future Mandy could handle it.
(She has handled a LOT of things, bless her.)
What I didn’t understand was that every one of those financial decisions was helping build a financial reputation for me.
Pay a bill late? That matters.
Run your credit cards up close to their limits? That matters.
Apply for a bunch of new credit? Yep, that can matter, too.
And while I eventually learned how to use credit responsibly, I didn’t start out understanding any of this.
I think that’s important to say because we sometimes talk about people with excellent credit as though they emerged from the womb clutching an American Express card and an 800 credit score.
We did not.
At least I didn’t.
I learned.
And somewhere along the way, I stopped thinking of credit as a way to buy things I couldn’t afford and started understanding it as a financial tool.
That distinction matters.
Because whether you’re buying a car, applying for a mortgage, or borrowing money for something else, lenders are trying to answer one pretty basic question:
If we lend this person money, how likely are we to get it back?
And your credit score helps them answer it.
So What Exactly is a Credit Score?
At its simplest, your credit score is a three-digit number designed to tell a lender how risky it might be to lend you money.
That’s it.
You don’t get extra points because you’re a delightful person.
Your salary isn’t part of your FICO score.
And the fact that you’ve banked with the same company since dinosaurs roamed the earth doesn’t automatically make your score fabulous.
Your credit score is based on information in your credit report — essentially the history of how you’ve used and managed credit.
Most of us are familiar with FICO scores, which generally range from 300 to 850.
Here’s the basic neighborhood:
- Under 580: Poor
- 580–669: Fair
- 670–739: Good
- 740–799: Very Good
- 800+: Exceptional
The higher the number, generally, the less risky you look to a lender.
And less risk can mean better borrowing terms — including lower interest rates.
Now, before you go checking your score and sending me an angry email because Credit Karma says one thing, your credit card app says another, and your lender pulled something else entirely:
You don’t have just one credit score.
There are different scoring models, different versions of those models, and even specialized scores used for things like auto lending.
So don’t get overly attached to one particular number.
The bigger question is whether the information in your credit history is telling lenders:
“Gladys pays her bills. We’re probably getting our money back.”
Or:
“Good luck, America.”
What Actually Goes into This Thing?
Okay, so how does this mysterious three-digit number get calculated?
For a typical FICO score, five major categories come into play.
And they’re definitely not created equal.
35% — Payment History
Or, as I like to think of it:
Do you pay your bills?
This is the biggest piece of your FICO score.
Lenders want to know whether you’ve paid your credit accounts on time in the past because, you may want to sit down for this, they’d very much like you to pay them back, too.
Late payments, collections and other serious delinquencies can hurt here.
Pretty straightforward.
30% — Amounts Owed
This one is a little more interesting.
It’s not simply about how much debt you have. FICO also considers how much of your available revolving credit you’re using — commonly called your credit utilization.
Let’s say you have a credit card with a $10,000 limit and your reported balance is $8,000.
You’re using 80% of the credit available to you.
That’s going to look very different than someone with the same $10,000 limit and a reported balance of $1,000.
And this is where I need to squash a credit myth:
You do not need to carry a credit card balance from month to month to build good credit.
Please do not pay 20-something-percent credit card interest because somebody once told you it would help your credit score.
It doesn’t.
Ma’am/Sir, put the card down.
We’ll come back to how to use that card responsibly in a minute.
15% — Length of Credit History
Basically:
How long have you been at this?
FICO considers things like the age of your oldest account, the age of your newest account and the average age of your accounts.
This is one reason you may want to think twice before closing an old credit card you’ve had forever just because you don’t use it much anymore — especially if it doesn’t charge an annual fee.
That doesn’t mean you should never close an old account.
It just means you should understand that your credit history has value before you start cleaning house.
10% — New Credit
Every once in a while, opening a new account? Fine.
Suddenly applying for credit all over town?
That can raise some eyebrows.
When you apply for certain types of new credit, the lender will typically make a hard inquiry into your credit report, and that can affect your score.
For the record, checking your own credit score or credit report does not hurt your score.
So check away, Brutus.
10% — Credit Mix
Finally, FICO considers the different types of credit you’ve successfully managed.
That might include credit cards, a mortgage, an auto loan or other installment loans.
But this does not mean you should go take out a car loan because you’re missing one from your credit collection.
Please don’t.
The point isn’t to collect debt like Garbage Pail Kids (helloooooo, 80s kids?).
It’s to demonstrate that, over time, you can responsibly manage the credit you actually need.
And that’s really the theme running through all five categories:
Use credit. Don’t let credit use you.
How to Use Credit Without Letting It Use You
For years, I primarily used my debit card for everyday purchases.
My thinking was pretty simple:
If the money isn’t in my checking account, I can’t spend it.
And honestly? That wasn’t a terrible system, especially when I was learning how to manage my money.
But today, I use credit cards for almost everything.
Not because I want to buy things I can’t afford.
Quite the opposite.
I use a credit card as the middleman between the outside world and my actual money.
If some jerk steals my credit card number and goes on a shopping spree, they’re messing with the credit card company’s money while I dispute the charges.
If someone gets access to my debit card, however, fraudulent transactions can involve money coming directly out of my checking account.
No thank you.
But here’s the important part:
Using a credit card like this only works if you treat it like a debit card.
If I don’t have the money to buy something, putting it on a credit card doesn’t magically mean I can afford it.
And every month, I pay my statement balance in full by the due date.
Not the minimum payment.
The statement balance.
The minimum payment is simply the amount the credit card company requires you to pay to keep the account current.
Paying the statement balance in full generally allows you to avoid paying interest on your purchases.
And considering that credit card interest rates can be north of 20%, I’d rather keep that money, thankyouverymuch.
Meanwhile, using credit responsibly over time — paying on time, keeping balances manageable and not applying for every shiny credit offer that crosses your path — helps build the credit history lenders use when deciding whether they want to loan you money and on what terms.
Which brings me back to Pearl.
Because after decades of doing those boring things, I walked into a dealership this week with something I didn’t have when I was that college kid running up her credit cards:
Options.
It’s About Their Risk, Not Your Need
Years ago, someone said something to me that I’ve never forgotten:
“Why can’t I get a 0% interest car loan when I’m the one who needs it the most?”
And I understood the frustration.
If money is already tight, paying a higher interest rate makes everything harder. Your monthly payment is higher. More of your money goes toward interest. And you end up paying more for the exact same thing than someone who is in a stronger financial position.
It can feel completely backwards.
But here’s the thing:
The lender isn’t looking at who needs the better interest rate.
The lender is looking at risk.
How likely are you to pay this money back according to the terms you agreed to?
Someone with a long history of paying bills on time, managing debt responsibly and using credit wisely represents less risk.
Someone whose credit history shows missed payments, maxed-out credit cards or other problems represents more risk.
And lenders generally charge more for taking on more risk.
That’s why taking care of your credit matters before you need it.
I didn’t build excellent credit because I knew I’d eventually be sitting in a dealership buying Pearl.
I built it one boring payment at a time.
One credit card statement paid in full.
One mortgage payment.
One car payment.
Year after year.
And when I eventually needed to borrow money again, all those boring financial decisions were sitting there waiting for me.
That’s the real power of a great credit score.
It’s not bragging rights.
It’s not getting excited because an app tells you that you’re “Exceptional.”
It’s having options when you need them.
And sometimes, those options can save you thousands of dollars.
Take care of your credit when you don’t need it.
Because someday, you probably will.
🐝 That’s the buzz for today!