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March is National Credit Education Month

Written by:
Financial Literacy Specialist

March is National Credit Education Month – here are basic credit concepts every single American needs to know.

Credit – when a person agrees to borrow money and pay it off later – is a lot more than just a three-digit number, and having bad credit has real-world implications. It can affect a person’s ability to buy a vehicle, where they can live, and even what jobs they can hold. But as important as credit is, an alarming number of Americans have no idea how it works:

  • 1 in 10 don’t know their credit score
  • 2 in 10 don’t know how to find their credit score
  • 4 in 10 don’t understand how credit scores are calculated

Financial well-being is contingent on having a healthy credit score and an accurate credit report. Take control of your credit this March by making sure you understand the basics of how credit scores are determined and how to find and fix errors on your credit report.

The factors that affect credit score

There are five factors that make up a credit score. In order of most to least impactful, they are payment history (35%), credit utilization (30%), age of credit (15%), number of inquiries (10%), and credit mix (10%).  

Payment history is how often you pay your bills on time. Late or missed payments will always hurt your credit score. To avoid this, set up automatic payments with lenders and utility companies that at least cover the minimum payment.

Credit utilization is how much of available credit you’re using. The general rule of thumb is to never have a credit utilization ratio below 20% – i.e. only using 20% of your available credit. If you have a combined $10,000 in credit from various lenders, the maximum amount you’d want to use at any given time is $2,000. High utilization makes lenders nervous because it can indicate that you’re spending beyond your means and at a higher risk of not being able to pay the money back.

Age of credit, the number of inquiries, and a person’s credit mix make up the other third of a credit score. Potential lenders like to see that a person has years of experience managing various credit accounts – the older your overall credit history, the better. Credit age is hurt by closing old accounts and opening new ones.

Applications for auto loans, mortgages, credit cards, or student loans all generate what’s known as hard inquiries. Making too many inquiries in a short period can be a red flag to lenders, and can appear that you’re relying on borrowing to make ends meet. Aim to have no more than two hard inquiries a year. Soft inquiries, on the other hand, do not affect credit history.

Last is credit mix. Lenders like to see that a person has experience managing different types of credit on a person’s history: revolving credit, like credit cards, and installment credit, like student loans. While this factor is nice to have, don’t go out of your way to diversify your credit mix and apply for a credit product you don’t actually need.

How to check your credit report

Your credit score is one thing, your credit report is another. A credit score is a helpful tool for gauging your credit health and indicating your odds of getting approved or rejected for things like loans, credit cards, or low interest rates. It’s an estimation, not a guarantee for approval.

Instead, lenders look at a credit report. It holds every detail of every credit account you’ve ever had and shows details like if you’ve ever missed a payment or been sent to collections, how many accounts you’ve closed, and how often you’ve maxed out a credit card.  A credit report is what really decides whether you get approved for a loan or credit card – so it’s a pretty big deal that 1 in 3 Americans have errors on theirs.

The best way to avoid errors is to check your credit report regularly. You can pull their credit report from each of the three main bureaus (Experian, Equifax, TransUnion) for free once per year at  If you find a mistake, file a dispute with the respective bureau whose report had the error. Once corrected you’ll likely find that your credit score increases too!

Ready to become a master at managing your credit?

Learn more about other foundational credit concepts with our Wise Up financial education course or dive deep into specific credit topics with free e-books and videos in our Financial Education Center.


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