Credit Scores Explained: How to Build and Improve Yours

Why Credit Scores Matter (And Why You Should Listen to Me)

Your credit score isn’t just a number; it’s the key to many of life’s financial opportunities—like buying a home, leasing a car, or securing a loan with favorable terms. Yet, understanding how credit scores work and how to improve them can feel overwhelming.

I’m Ben Loughery, CFP®, and I’ve worked with clients who’ve successfully rebuilt their credit and achieved financial milestones they never thought possible. In my experience, a strong credit score isn’t about how much money you have but how well you manage it.

In this article, I’ll break down the basics of credit scores, explain why they matter, and share actionable tips to build or improve yours—whether you’re just starting out or looking to recover from financial setbacks.

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What You’ll Learn in This Article

• The history and purpose of credit scores.
• What a good credit score looks like (and why more money doesn’t guarantee one).
• How to improve your credit score step-by-step.
• Ranges that can help you qualify for a mortgage, car loan, and more.

By the end, you’ll have a clear understanding of credit scores and the tools to take control of yours.

What Is a Credit Score (And Why Does It Exist)?

Credit scores were introduced in 1956 by the Fair Isaac Corporation (FICO). The goal was to create a standardized way for lenders to evaluate risk and determine whether borrowers were likely to repay their debts. Before FICO, decisions were largely subjective, leading to inconsistencies and potential biases.

The Credit Score Range

Most credit scores fall within a range of 300 to 850:

• 300–579: Poor
• 580–669: Fair
• 670–739: Good
• 740–799: Very Good
• 800–850: Exceptional

👉 Source: MyFICO

Key Question: Does Having Money Automatically Mean a High Credit Score?

Not necessarily. While wealth can make managing finances easier, your credit score is based on how you manage credit—not how much money you have.

Factors That Influence Your Credit Score

1. Payment History (35%): Paying bills on time is the single most important factor.
2. Credit Utilization (30%): This refers to the percentage of available credit you’re using. Keeping it below 30% is ideal.
3. Credit History Length (15%): The longer your accounts have been open, the better.
4. Credit Mix (10%): A variety of credit types (e.g., credit cards, loans) shows you can manage different obligations.
5. New Credit (10%): Frequent applications for new credit can lower your score temporarily.

In my experience, I’ve worked with high-income clients who had poor scores because they missed payments or carried high balances. Conversely, I’ve seen modest earners achieve exceptional scores through disciplined credit management.

What Credit Score Do You Need to Qualify for Loans?

Here’s a breakdown of typical requirements:

Car Loans

• Excellent (740+): Access to the best interest rates.
• Good (670–739): Reasonable rates, though not the lowest.
• Fair (580–669): Higher interest rates and stricter terms.
• Poor (579 or below): Likely need a cosigner or pay exorbitant rates.

Mortgages

• Conventional Loans: Typically require a score of 620 or higher.
• FHA Loans: Allow for scores as low as 500 with higher down payments.
• VA Loans: Often have no minimum credit score requirement but aim for 580+.

👉 Source: Experian

How to Build and Improve Your Credit Score

1. Always Pay On Time
Your payment history accounts for 35% of your score. Set up automatic payments to avoid late fees.
2. Reduce Your Credit Utilization
Aim to use less than 30% of your available credit. For example:
If your credit limit is $10,000, keep your balance below $3,000.
3. Don’t Close Old Accounts
Length of credit history matters, so keeping older accounts open can boost your score over time.
4. Avoid Opening Too Many Accounts
Each application triggers a hard inquiry, which can lower your score temporarily. Space out applications by at least six months.
5. Monitor Your Credit Regularly

Use free tools like Credit Karma or Experian to track your score and catch errors.

Common Myths About Credit Scores

1. Closing Paid-Off Cards Will Help My Score

Truth: Closing accounts shortens your credit history and increases your credit utilization, which can hurt your score.

2. Checking My Credit Hurts My Score

Truth: Soft inquiries (like checking your own score) do not affect your credit. Only hard inquiries from lenders impact it.

3. I Need a Perfect Score to Get Approved

Truth: A score of 750+ typically qualifies for the best rates. Anything higher is a bonus but not necessary.

The Cost of Ignoring Your Credit Score

Neglecting your credit can lead to:

• Higher interest rates: On loans and credit cards.
• Difficulty renting: Many landlords check credit scores.
• Lost job opportunities: Some employers review credit as part of background checks.

Tools to Help You Improve Your Credit

1. Experian Boost: Adds positive payment history from utility and phone bills to your credit report.
2. Monarch Money: Tracks spending and helps you identify areas to cut back and pay off debt faster.
3. Secured Credit Cards: Great for building or rebuilding credit by requiring a deposit as collateral.

👉 Source: Best Credit Improvement Tools – NerdWallet

Conclusion: Take Charge of Your Credit Today

Your credit score is a critical part of your financial health, but it’s not permanent. With consistent habits and the strategies outlined here, you can build or improve your score over time.

In my experience, clients who take small, steady steps—like paying on time and reducing utilization—often see significant improvements in just a few months.

👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video

FAQs

1. What’s the Highest Credit Score Possible?

The highest score is 850 under both FICO and VantageScore models.

2. How Long Does It Take to Improve a Bad Score?

Depending on the issue, you can see improvements in as little as 3–6 months with consistent habits.

3. Can I Get a Mortgage with a Fair Credit Score?

Yes, but you may face higher interest rates. Consider improving your score first to save money long-term.

Disclaimer: Case studies are hypothetical and do not relate to an actual client of Lock Wealth Management. Clients or potential clients should not interpret any part of the content as a guarantee of achieving similar results or satisfaction if they engage Lock Wealth Management for investment advisory services.