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These 2 Credit Score Tips Should Be Etched in Stone

By Nathan Hamilton - Mar 17, 2017 at 11:27AM

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Find out why these two credit score tips can mean the difference between eventual financial bliss or struggling to get ahead.

A full 60% of Americans don't know their credit scores, according to LendingTree research. This seemingly innocuous three-digit number can mean the difference between beating financial goals or falling short, as low mortgage rates and some of the more lucrative cash-back credit card rewards are typically reserved for people with good credit.

To that end, Motley Fool credit card specialist Nathan Hamilton and deputy managing editor Michael Douglass discuss in the video below two crucial credit score tips and why they matter for your financial health.

Michael Douglass: Nathan, let's talk about credit scores for a bit. Now as you've referred to it previously, it's the most important three-digit number that no one pays attention to. So I guess first off, before we get into tips as to how to best manage that credit score, why is a credit score important?

Nathan Hamilton: I guess I shouldn't say no one pays attention...

Douglass: Relatively few people.

Hamilton: Yes. It should be more important, and more people should be paying attention to it. Why is it important? Everything in your life essentially comes down to your financial life. A lot of people borrow money -- their mortgage, credit card debt, auto loans. Nobody really pays cash up front for those sorts of expenses. And your FICO score is that underlying number that the banks use to determine [if] you are a risky person to lend to or a high-quality person to lend to. That determines what you pay in interest charges and over your life as a borrower.

If you compare, say, a high FICO score to somebody with a low FICO score, the difference is hundreds of thousands of dollars. Really, you're going to be helping your future retirement. It could be the difference between, essentially, surpassing a million dollars (becoming a millionaire) versus having hundreds of thousands of dollars less, all because of a three-digit number.

Douglass: And I can speak to this. I actually didn't have a credit history when I applied for my first car loan, and that meant that I paid a much higher interest rate than I would have otherwise.

Hamilton: And you're a [financially] savvy guy.

Douglass: Right!

Hamilton: And even you weren't paying attention to it.

Douglass: I wasn't, maybe, at the time. To be fair, I was still in college. But, yeah, it was very eye opening for me and something I've really worked to establish...a more consistent credit history.

Hamilton: Absolutely.

Douglass: Let's talk about paying on time. And this is one of those things where I'm sure you're sort of, "Well, yeah, duh. You should pay on time." But it turns out that's a really big part of your FICO score and it's something that trips a lot of people up.

Hamilton: Yeah, absolutely. It is a no-brainer when it comes down to it. Pay your credit card bills, your mortgages, anything that you borrow money on, on time. And the reason being is your FICO score. Thirty-five percent of it is weighted to your payment history, and it is the biggest single factor determining your FICO score. So if you want to make large changes (either to the upside or to the downside), it's a matter of paying those bills on time.

Douglass: Simple as that.

Hamilton: Simple as that.

Douglass: The second one is a little bit more nuanced, and it's keeping utilization under 10%. That's essentially across your loans -- making sure that you aren't taking out more than 10% of your credit limit...

Hamilton: Sure...

Douglass: a given month.

Hamilton: Yes. So if you have $100,000 in available credit (student loans, credit cards, so forth), keeping it below $10,000 is ideal.

Douglass: Right.

Hamilton: Generally credit-scoring models want to see it below 30% and altogether it also accounts for 30% of your FICO score. It's the second-biggest factor -- behind paying bills on time -- [for getting] a good or bad FICO score. And if you look at why, it makes sense. FICO, the credit scoring model company, [just wants to] ensure that you're managing your budget well. You're a good borrower. You're not essentially over-borrowing. You're not reckless.

Douglass: You're not spending up to the limits.

Hamilton: Exactly.

Douglass: Right.

Hamilton: It's just something important to focus on -- essentially keeping to a budget.

Douglass: Absolutely. That makes sense. Well, cool. Do check us out. We've got a lot of good credit card and credit score information at We've got some free guides on your credit score. We've also got Nathan's top picks for credit cards...

Hamilton: The Motley Fool's top picks...

Douglass: The Motley Fool's top picks and a lot of good information there, so be sure to come by.

Hamilton: Yeah, absolutely. Look forward to seeing people there.

Nathan Hamilton has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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