Tori Dunlap Says Your Credit Score Is 'Your Adulting GPA.' Here's Why It Matters

Credit scores are one of those things many adults talk about -- along with inflation and lower back pain. And if you've never really considered yours before, you might wonder what all the fuss is about. Who cares about credit scores, anyway? Well, many of the financial entities in your life (such as mortgage lenders, credit card companies, and even auto insurers) sure do.

Financial guru and author Tori Dunlap recently noted on an episode of her podcast, Financial Feminist, that your credit score is "your adulting GPA." The higher it is, the better chance you have of succeeding in some of the most consequential financial endeavors in your life, like buying a home. Here's why.

Why does your credit score matter?

Think of your credit profile like the ultimate report card for your finances. All your credit accounts (which include loans and credit cards) will appear on it, and it's a record of how well you manage those accounts. FICO is the most-used credit scoring model, and calculates your FICO® Score based on five different factors:

1. Payment history (35%): Have you made your credit payments on time?
2. Amounts owed (30%): How much money do you owe to your creditors?
3. Length of credit history (15%): Do you keep your credit accounts open or close them frequently?
4. Credit mix (10%): Do you have only credit card accounts or also a mortgage loan and maybe an auto loan?
5. New credit (10%): Do you frequently open new credit accounts?

Your credit score figures into nearly every aspect of your financial life. If you want to buy a home and apply for a mortgage loan, the lender will pull your credit and decide your interest rate based on it. The same goes for an auto loan. And if you need a new car insurance policy, yep, the insurer may even look at your credit score and use it to determine your policy cost. In short, your credit score matters. If your score is looking a little lackluster these days, the good news is that there are ways to improve it.

How can you improve your credit score?

First and foremost, a great way to improve your credit score is to pay down any debt you may have. If you have high-interest debt, such as that on a credit card, this will improve your life in a number of ways, including letting you sleep easier at night and freeing up more of your cash to meet other financial goals.

In terms of credit score impact, I can share my own experience. I spent part of 2022 paying off debt, and in the last year, my credit score has increased by over 100 points, taking me to the "Exceptional" range for FICO. The amount you owe to your creditors accounts for 30% of your score, so if you can pay down some debt, it will have a noticeable impact.

Despite the debt, my credit score was in the "Good" range back then, and I credit my exemplary history of making on-time payments on my credit accounts. If you haven't been so good at making sure your bills get paid on time every month, now is the time to focus on that. Set up automatic payments on your credit card, personal loans, and other credit accounts -- that'll save you from forgetting you have payments due.

Finally, you can improve your credit score by having any errors removed from your credit report. Credit report errors are common; a study conducted by Consumer Reports in 2021 found that more than a third of participants found at least one error on theirs. If you file a dispute with the credit bureau showing the error, you can have it removed, boosting your credit score.

Your credit score may be your adulting GPA, but the good news is that you can improve it at any point in your life. Take the above steps to give your credit score a boost and enjoy lower interest rates on loans, the best auto insurance rates, and perhaps a shot at the sweet rewards credit card you've been dreaming about.