Credit Score Guide


Your credit score is one of the most important aspects of your financial life — and it’s crucial that you understand both what it means and how it’s calculated.

What makes things confusing is that there are actually a ton of different credit scores out there, but there’s only a single ‘real’ one that’s used by most lenders. And this is the one that matters most.

What you don’t know about credit scores can hurt you

This is just the tip of the iceberg when it comes to consumer confusion about your credit score. Not all credit scores are created equal. And to get a good credit score — regardless of whether you’re talking about the real one or one of the made-up ones — you’ve got to actively manage and manipulate your credit. Yes, that’s right, ‘manipulate.’ This is the kind of instance where manipulation does not have a negative connotation!

In this credit score guide, you’ll learn what a credit score is, what will damage your score and how you can improve it. Taking control of your credit score has never been easier. Just follow these steps below!

Know your real credit score

What is a credit score?

Your true credit score is a number between 300 and 850 that evaluates your risk as a borrower. There is one source and one source only for your true credit score (aka FICO score) — the Fair Isaac Corporation.

A score of above 700 on the FICO scale is like getting a B+ in school. Anyone with a FICO score of 760-850 is an A student, or what’s called ‘golden’ in the industry, which means you’re a great credit risk for a lender.

The three main bureaus hate that FICO dominates the credit score market, so they started selling their own impostor score called a VantageScore. This is just one of hundreds of trademarked, proprietary scoring systems that’s competing with the FICO score. Unless you’re careful, the VantageScore is the one you’ll most often be sold in the marketplace. The VantageScore begins at 501 and tops out at 990.

Getting your true credit score

You have a FICO score with each of the three main credit bureaus — Equifax, Experian and TransUnion. Each bureau’s score will vary slightly because of differences in the way they compile information on you. But they’ll all be similar in range. (The credit score most used by lenders is the Equifax FICO score.)


Experian no longer permits consumers to purchase their FICO scores, but these scores are still available to businesses. The Equifax FICO score remains available to consumers, however it is bundled with other unnecessary items like credit monitoring and credit reports. The cost of these bundles is high, ranging from roughly $20 to $40 annually or monthly charges of $13 to $15. (Remember, you can get free access to your credit reports at

In addition, Equifax now sells a proprietary credit score called Equifax Credit Score to consumers by phone for $7.95 when you call 1-877-SCORE-11. (Do not use the Equifax website to order this score or you will pay $15.95!)  The score is sent by regular mail in 7-10 days.

The Equifax Credit Score score ranges from 280-850, not the 300-850 scale of the FICO score. However, because the score you receive is quite close to your true FICO score, this remains the least expensive way to get a very close approximation of your FICO score. In some cases, it may be the exact same number of both scores.

Meanwhile, all active duty military personnel can see their real true FICO score for free online by

Free non-FICO approximations of your credit score

Not all credit scores are created equal, as I’ve shown you with the VantageScore. There are your FICO scores and then there’s everybody else’s scores! Financial writer Greg Karp has even coined the phrase ‘FAKO’ score to denote all the impostors.

Despite the name, ‘FAKO’ scores have some real benefits for you. They’re free and instantly available, which means you can stay abreast of your creditworthiness on the cheap whenever you want, with some limitations.

  • gives you a ‘FAKO’ score based on your TransUnion report once daily.
  • gives you their ‘FAKO’ score based on your Experian report twice a year.

Each of these free services may try to up-sell you on a variety of additional services. But there’s no obligation to buy anything to get a ‘FAKO’  score.

What happens to your credit score if…

How will something as small as skipping your cable bill for a month impact your score? Or on the other end of the scale, how will a major event like filing bankruptcy, doing a short sale or falling into foreclosure hurt your score?? Here’s a quick breakdown of the damage both great and small.

Minor damage:

  • Missed payment on all bills this month? Subtract between 75 – 125 points off your credit score
  • Credit cards maxed out? Take between 20 – 70 points off your credit score
  • Doing a balance transfer? Expect a 15 point drop in your credit score
  • Applying for new credit? Your credit score will temporarily drop around 10 points

FICO Score Simulator offers these ballpark figures for free online. For more detailed projections involving more variables, you’ll have to purchase this FICO analysis product for $15.95 per bureau.

Catastrophic damage:

  • A short sale will lower your credit score by 120-130 points*
  • A foreclosure will drop your score by 140-150 points*
  • Bankruptcy can decimate your credit score by 365 points*

When you do a short sale, the lender agrees to let you sell your property for below market value and walk away with no further obligations. But if you go into foreclosure, the lender has the right to sue you for deficiency, which will foul up your credit for seven years. That means you’re responsible for whatever financial losses they suffer as a result of the foreclosure. A foreclosure can lead you to bankruptcy, which remains on your file for 10 years.

* These numbers are compiled based on your VantageScore — not your official FICO score. Your FICO score would likely take a similar hit.

How to improve your credit score

If you’re suffering from poor credit, there are several surefire ways to get your credit healthy again. Follow these tips and you’ll be well on your way:

  • Always pay your bills on time and pay down the total amount you owe. (accounts for 35% of your score)

    If you forget all else after reading this, remember this one! This is the single most important rule for having a good credit score.

  • Keep a low credit utilization rate. (accounts for 30% of your score)

    Let’s say you have a credit card with a $10,000 limit. If you’re carrying a balance month-to-month of $3,000, you’re only using 30 percent of the total limit. But if your credit limit is suddenly dropped to $3,000, then suddenly you’re using 100 percent of what’s available to you. That’s yet another reason to always pay down credit card debt as quickly as possible. You always want to stay at credit utilization of 30 percent or less.

  • When you pay off a credit card, don’t close the account. (accounts for 15% of your score)

    Doing so only reduces your available credit and drives your score down. You want to have between four to six lines of credit. Be sure to use them twice a year — even if it’s just for a dollar store purchase — and pay them off right away. That will keep them active in your credit mix.

    If you’re facing a huge new annual fee on a card that has a zero balance, try ‘leapfrogging.’ That’s my term for using the 45-day window you have before any new terms of service go into effect to shop around. So once you get notice about a new annual fee, start looking around for other no-fee credit cards. Submit your application and once you get your new no-fee card, then go ahead and shut down the original one that wanted to spring a fee on you.

The remaining 20% of your credit score is comprised of what types of credit make up your credit mix (10%) and how much new credit you have in your life and how quickly you took it on (10%).

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