Demystifying Crazy Confusing Credit Scores and How I Manage Mine

Why Credit Scores Are Crazy Confusing and How I Manage Mine

I once had a lazy landlord who made us vet prospective roommates, which meant awkwardly asking people for their credit report. While I vaguely knew that my “credit was checked” whenever I applied for an apartment, it didn’t become real until I was asked to assess a person’s worthiness based on a bunch of stats. That’s when it hit me that bad credit or no credit can prevent you from doing normal things, like living in the apartment you want.

Or buying a car so you can go to work. My mom got suckered into cosigning a car loan for her friend’s son, because neither the friend nor the kid had good enough credit to qualify for a decent interest rate.

(PS. Think long and hard before cosigning for someone, because you bet my mom was sweating pretty bad when the kid was late on a couple payments).

So who did my roommates and I end up choosing?

The girl who moved in was well-spoken, asked thoughtful questions, divulged pet peeves that were reasonable, answered e-mails with impeccable grammar, and showed up to meet us not one minute late. 

But her credit score wasn’t great.

It could be better, I thought, as I skimmed through her report. But judging how responsible someone might be based solely on their credit history felt short-sighted. Plus, I had a really good feeling about her. The girl ended up being one of my favorite roommates, and was a heck of a lot more put together in life than me, who, surprise surprise, was the one with the much better-looking credit score. 

The first thing I want to say about credit scores is that you are not your credit score.

Don’t confuse your self-worth as a person with a number. There are plenty of financially responsible people who made one fateful mistake or figured out how credit worked too late, and that’s why they have lower scores.

Two: You need a credit profile to exist in the world.

At least in the US. So trying to bypass the system by refusing to use credit is likely to hurt you in the long-term.

And three: Learning how to manage your credit isn’t about just numbers–it’s a life skill.

I told Instagram that this post about credit scores would be different, and that’s because it’s not really about credit scores. 

It’s about how to power through uncertainty. In life, there are no guarantees. You put in your best efforts, but you can’t always foresee the outcome.

And what’s more uncertain in life than credit scores? You get assigned a number that sets you up to be judged. No one tells you how that number is calculated, and you feel powerless over what you can do about it.

So it makes sense that whenever I casually mention anything about credit cards, the questions I get are always in earnest, like:

“Is opening up a new credit card going to ruin my credit?”
“Is it OK to close my oldest credit card?”

The definitive answer is: I don’t know exactly.

I might know some random things, but when it comes to how decisions will affect YOUR credit I honestly can’t give a recipe.

And you shouldn’t trust anybody who tells you to do exactly this or that. Because there are a zillion factors to consider. Like, if you’ve only had a credit card for a year, you can’t do the same exact stuff I do and expect the same results, you know?

So credit is really one of those things where you not only have to learn how to assess your own situation, but build the confidence to manage it by yourself.

Don’t stress–I’m here to help you out!

Here’s what’s in this post:

Why Credit Is Important

One of my pet peeves is how no one can seem to talk about credit scores without sparking fear and anxiety.

Everyone and their mom on the Internet has heard the story about someone’s credit score dropping 100 points–omg–so basically everything you do with credit is “bad”. Of course, these stories are told without much context.

Sweeping the fear tactics aside, there are legit reasons why credit matters. As I’ve mentioned above, for renters like me, our credit can dictate where we get to live. I’ve had potential roommates have trouble since they were foreign and had no credit history.

When it comes to borrowing big sums of money, like for mortgages and cars, it’s important to recognize the financial impact. People with “excellent” credit scores will qualify for the lowest interest rates. Lower interest rate means lower monthly payments, which means more money in your pocket for other things.

While it seems unfair, sometimes employers check your credit report (but not your actual credit score) before hiring you. This is more common if you work in the financial services industry.

And in my own life, I used to have credit card debt, but after I cleared that up I started using my credit as a tool–to qualify for the best credit card benefits, like travel rewards and generous return policies when I shop.

Where to Check Credit Scores for Free

*Some affiliate links below*

OK, so how do you check where you stand? I’m with the school of thought that you shouldn’t have to pay to check your credit score. This can be surprisingly easy if you know where to look.

You can generally find a version of your credit score (I’ll explain this later) through some places you might already visit.

Credit Cards

When you log into your credit card account to pay a bill, you might notice a credit score link in the sidebar.

Here are the accounts I have where I can also access my credit score.


You can also check your credit score through select banks:

Credit Score Monitoring Services

If you’re looking for more robust educational tools, there are specific monitoring services, although they require creating an account:

Note that checking your credit score doesn’t actually hurt it–contrary to popular belief!

What to Watch Out For

There are so many predatory financial resources out there, ready to separate you from your money.

When you check your credit score for free, chances are you’ll be served ads for recommended credit cards to sign up for. Or some sort of “enhanced” paid credit card monitoring subscription.

These free services make money from credit card ads, so I want you to be very careful about signing up for recommended credit cards without at least doing your own research first. And don’t sign up for these paid subscriptions simply out of fear.

Credit Score Systems and Ranges

Now that you know how to get your number, what does it mean, contextually?

Popular credit score models range from 300-850, and the tiers look like this:

Source: MyFico

800+ qualifies as “exceptional,” but note that if your score is 740 or above, you’re probably gonna be alright in most scenarios.

How Your Credit Score Gets Calculated

You may have noticed above that I said ‘models’ with an ‘s’. Yep, there are multiple scoring algorithms.

  1. Every time you do anything that has to do with owing money, that gets reported to at least one of the credit bureaus: Equifax, Experian or Transunion. Those agencies summarize your activities into a credit report.
  2. Then scoring models take the info from the credit bureaus and calculate that into a score.

Two of the top scoring models are FICO and VantageModel 3.0. You may have heard someone say, “My FICO score is 780.” It’s important to understand the differences between each.

  • FICO – 90% of lenders will use a version of this score.
  • VantageScore 3.0 – This score is less widely used, but is commonly the score you’ll find through free credit monitoring tools.

When you check your credit score, you should note the actual model it’s using. While the factors are similar, each calculates your score using a slightly different algorithm. But since most lenders use FICO, it probably makes sense to weigh that score a little bit more than the VantageScore 3.0 one.

Why Credit Scores Are Massively Confusing

Now we know there are THREE credit reporting bureaus, and more than one scoring model.

It gets worse:

  • There’s no definitive resource for understanding how credit scores work, and the ones that exist seem to have conflicting information.
  • There’s no universal ‘cut-off score’ to get the best interest rates.
  • No one tells you that there is actually an absurd number of credit score versions–auto and mortgage lenders, for example, might have their own scoring system.
  • The score you check from free monitoring sites probably won’t be the same score that lenders use. You know, when it actually counts.
  • And lenders don’t divulge exactly which scores they use and how they’re calculated.

Your Credit Score Might Not Be That Real

Let’s start putting this stuff into action.

Ever been on social media and saw someone boasting about their amazing credit score?

What they don’t tell you is that the score might just be a vanity metric.

Example: I logged into my Discover account and got this credit score:

Discover FICO Credit Score

The same day I logged into Credit Karma, and saw two other scores, a full 20-30 points above my Discover one.

Credit Karma Transunion and Equifax Scores

I’ve got three different numbers–which is the “real” one? The 784 one, the 803, or the 816???

Two details to note: at the top of the Discover score, it says ‘FICO Score 8’. At the bottom of the other two scores, it says ‘VantageScore 3.0.’ Now we see there are two different scoring models being used.

Then each Credit Karma score is using a different credit bureau’s information. The one on the left is using Transunion, and the other is using Equifax.

Important note: the scores above are most likely not the same ones that mortgage lenders will pull. They have their own secret sauce scoring logic, and I haven’t seen a way to get that score for free. When people apply for mortgages or car loans, they’re often surprised by this discrepancy.

That’s why it’s critical to understand that the score you check yourself is generally an approximation. And while the FICO version you see won’t be exact, it will most likely be closer to the one the lender uses.

The Ingredients of a FICO Credit Score

If you’re looking to improve your score, you first have to understand the makeup of a credit score. Which levers you can push and pull.

I’m an 80/20 gal, so I’d focus my efforts on the three highest factors:

  • Payment history
  • Amounts owed
  • Length of credit history
Image: myFICO

Gather Data Points

When it comes to finances, most of us get anxious and tend to make decisions with our emotions. Instead of using fear to guide your credit decisions, root yourself in the data to find the path forward.

Managing your credit score is like asking for a promotion at work. You’d first gather the metrics you need to achieve to get the new job, right? It makes sense to do the same if you were looking to boost your credit score.

In terms of the financial end game–making sure you get the best possible interest rates when borrowing money–it’s like applying to college.

Everybody knows the basic things to do to look attractive to colleges–consistently get good grades, participate in some extracurriculars–but no one knows exactly how each college weighs the factors. And some selective colleges might have their own unique evaluation system.

This is the same line of thinking you’d want to apply to your credit score. Understand the metrics, but focus first on solid habits, because you don’t know the exact algorithm lenders will use.

A Look Into My Own Credit Score

Now we know that the credit scores we check for free are an approximation, and not gospel. That’s key.

Let’s put it into practice by deconstructing my own score.

I like using Credit Karma to monitor my score as an educational tool. I haven’t found a tool that really breaks down your FICO score in an actionable way, so we’ll use Credit Karma’s VantageScore 3.0 model as an example.

Below you can see the summary of my Credit Karma score factors and their impacts. I find the color coding to be helpful for beginners: ideally, you’d be green in all areas. As you can see, I have a red and a yellow, so my score could be improved!

Credit Karma High-Impact Factors

In the next sections, we’ll go through each factor one by one.

1. On-Time Payments

The first high impact factor is paying at least the minimum payment ON TIME. Basically, all the time.

There’s not a lot of room for error in this one. For example, if I’ve made 100 payments total, and two of those were late, now I’m in the yellow zone.

I’m doing well in this area, since I almost never miss a payment.

Credit Karma Payment History

2. Credit Usage

The second factor to consider is the percentage of credit you’re using. In my example, I have $60,000 of credit available to me, and I’m only using $73 of it, which is basically 0%. Note: the credit amount doesn’t include my business credit cards, which is, uh, a lot.

If you look for the green lines below, you’ll see that using less than 30% of the credit available to you gets the thumbs up.

Credit Karma Debt Utiliization

The credit use factor is critical to understand, because there are definitely things you can do about it. Especially if you’re the type who doesn’t trust themselves to use credit cards responsibly. The natural reaction would be to keep the credit limits as low as possible. But this can negatively affect your credit score. I saw this happen with another roommate. She had a couple credit cards, but each one had a lower credit limit, around $1,000. How easy would it be to charge normal expenses (groceries, medical expenses, etc.) and exceed the 30%? Pretty easy.

Some actionable steps here could be asking your existing credit cards to increase your limits, or applying for new credit cards. But of course, the caveat is that you’ll need to use your new credit responsibly 🙂

3. Derogatory Marks

Note that ‘derogatory marks’ is not included in the FICO factors pie chart. But in general, you don’t want to your bills to end up in collections. Say, a medical bill you forgot about for months on end (yeah, I’ve done that). Other types of incidents that are included in here are bankruptcies, debt settlements, and foreclosures.

Since I’m all good in this category, and Credit Karma deems this a “high factor,” this might be one reason why my VantageScore is higher than the FICO one.

Credit Karma Derogatory Marks

4. Average Age of Credit

Important note on this one: in this VantageScore 3.0 example, credit age is a medium factor, but FICO counts it as a high factor. Since most lenders will use a version of your FICO score, I’d weigh this factor as high.

To get into the green zone, I need an average credit length of at least seven years. This is why people who are new to using credit get easily frustrated. Credit is a long game.

Looking at the credit account ages below, I’ve got good things going for me here, and some not-so-good things.

My Credit Karma History

I got lucky with one of my oldest credit cards. I signed up for the Chase Freedom card over 12 years ago, and I still get value from it, so never felt the need to close it. Also, there’s no annual fee, so keeping it open doesn’t cost me any money.

On the other hand, my travel hacking efforts have me signing up for 3-4 new cards per year. As you can see, I have one card that’s 5 months old, and another that’s 11 months. These shorter lengths are dragging down my average credit length to a little over five years. That puts me in the ‘needs improvement’ zone.

If you need to close cards with annual fees, and your credit history isn’t that long, you can ask the issuer if there’s a no annual-fee card option to downgrade to.

5. Number of Accounts / Credit Mix

This is a lower factor, but one that I believe has kept me from the elusive 800+ FICO score. Most of my credit accounts have been now-paid-off student loans and credit cards. Yeah, that’s all I’ve got.

I don’t have a mortgage, have never bought a car, and have never taken out a personal loan.

My credit types are not very diverse.

But I’m not gonna go buy a house or a car just to raise my credit score. Also, a minimum of 11 accounts to get into the green zone is a lot!

Considering how this factor is less important, I choose not to focus on it at all.

Credit Karma Total Number of Accounts

6. Hard Inquiries

A hard inquiry gets triggered whenever you apply for a loan, apply for a new credit card, and sometimes when you apply for a new bank account. If you have too many in a short amount of time, the algorithms might think you’re short on cash and a high-risk customer.

In my case, my hard inquiries are mostly me applying for new credit cards.

And as you can see below, my assignment depends on the credit bureau: according to Equifax I’ve got two hard inquiries and Transunion has me down at five.

Different banks report my applications to different bureaus. Barclays, Chase and Capital One reported to Transunion. Citi reported to Equifax.

Every time I apply for a new credit card, I don’t notice a huge change in my credit score, so I tend to personally ignore this one, too.

My Credit Karma Equifax Hard Inquires
Credit Karma TransUnion Hard Inquiry

How I Manage My Credit Score

Improving your credit score can feel like a task on your financial to-do list to check off. But to keep perspective, I try to think about the end result I’m trying to achieve:

“What do I need to use my credit score for?”

I rent an apartment already, and have saved up enough money to buy a car with cash.

The only future plan I have to borrow money is possibly for a mortgage, but that’s a ways off. In that case, I’d lay off the credit card applications for a while and keep my credit use percentage on the lower side.

While some look to hack their scores to 800+, I see that as a status symbol that doesn’t actually benefit me in a meaningful way.

My score has been in the 740+ range for years, even when I apply for new credit cards like it’s going out of style. A longer credit history and consistently paying my bills on time has gotten me far enough, even when I had no idea what my score was, so I don’t feel the need to actively boost or manage my credit. And yes, I’m very lucky that I’ve never made a major mistake.

Focus on What You Can Control

Maintain good habits.

Most of us will eventually build good credit scores over time by consistently making payments on time, keeping the utilization less than 30%, and keeping some of our oldest credit lines open.

Check your credit report for mistakes.

If you seem to be doing everything right, and your score doesn’t seem to be improving, it’s worth getting your credit report to see if there are any inaccuracies. You can get this for free annually–one from each of the three credit bureaus–from There should be a way to dispute the mistakes within the website.

Ask lenders for the specific scores they use.

If you are nervous about interest rates, be proactive and ask potential lenders for the score version they use (example: mortgage lenders might use FICO 2). Then try to see if you can get the same exact score to confirm where you stand.

Other Helpful Resources to Consider

Use a credit score simulator.

If the idea of making a credit-related decision still scares you, there are credit score simulators out there to help you guesstimate.

Below is an estimate of what would happen if one of my accounts went to collections.

And here’s the estimate of what would happen if I did end up closing that 12-year-old card. One point, eh?

A few free credit score simulators to know about:

Ask people who have experience doing the exact thing you’re trying to do.

If I was worried about getting a mortgage, I’d be asking some friends around me who have bought in the same area for information.

Similarly, think about the context when taking advice from people on the Internet (yes, even me!) For example, my oldest credit card actually got closed, because I never used it for years. Common advice is to never let that happen. But it happened to me, and it didn’t really affect my credit score at all. The context is that I still had a fairly lengthy credit history without that one card. But someone with only a year of credit history might have suffered a greater impact.

Would I Pay for My Credit Score?

I personally don’t see a reason to pay for my score at this time. As I mentioned before, I don’t believe in paying for this stuff, especially if the score you get isn’t the same one that lenders will use.

But if I was really concerned about it, the only place I’d consider buying from is MyFico. With MyFico you can currently buy up to 28 score versions. I’d first ask potential lenders for the score version they use. Then I’d verify with MyFico that that score is included in one of their packages. I also wouldn’t be afraid to cancel the subscription after I got the score I wanted.


To recap, here are the top things to know about credit scores:

  • Pay your bills on time.
  • Keep the credit use to no more than 30% of your total credit limits.
  • If you have a shorter credit history, be mindful about closing out older cards.
  • The credit score you check for free will most likely not the same one that lenders use. Don’t be surprised by this.
  • Don’t get sucked into vanity metrics. There are bigger financial fish to fry.

If you’ve read down this far, hopefully I’ve made credit scores feel a lot less opaque, and you now have the tools to confidently manage your own score!

What’s your stance on credit scores? And what are the biggest myths that need to be debunked? Are you into hacking yours or do you mainly rely on good habits?

Feature Image: Unsplash

You May Also Like