One day you wake up and decide that you want to buy a house. Obviously, you can’t buy a house without money. So you toil away for years saving up enough for a down payment. Finally, the day has come and you pick out the PERFECT home for you and your family. You head over to the bank to borrow money and… you’re loan request is denied!
“What?! Why can’t I borrow money from you guys???” you exclaim in frustration.
The banker shrugs says: “sorry kiddo… you don’t have a good enough credit score…”
Though you may not deal with credit scores often, they are a KEY part of personal finance. This one personalized number can singlehandledly decide whether you can or can not afford stuff like houses, cars, tuition, etc. And can save (or cost) you thousands and thousands of dollars.
If you want to succeed in your own finances, you NEED a good credit score. But before we dive into how to get one… first, what IS a credit score?
What is it?
Put simply, your credit score is a unique number from 300-850 that is assigned to you and you alone. This number tells banks and other institutions how trustworthy you are with money. With a good score, banks are more willing to lend you money for important things you might want to buy in the future: a car or even a house. With a bad score, banks will charge very high rates on loans (you need to pay more money) or they won’t give you a loan at all.
Equifax describes a credit score as “a three-digit number designed to represent the likelihood you will pay your bills on time… those with higher credit scores generally receive more favourable credit terms, which may translate into lower payments and less paid in interest over the life of the account.”
Think of your credit score as a grade you receive in how well you pay back money. If you’re amazing at paying back money (always pay in full and on time), you’ll have a higher score. If you’re terrible at paying back money (super late all the time), you’ll have a lower score. Banks and financial institutions use this grade to then decide whether they should lend you money in the future and how much to charge you if they do.
What is a Good/Bad Credit Score
Like grades and averages, there is a maximum (best) credit score that you can have and a minimum (worst) credit score that you can have.
The absolute lowest credit you can possibly have is 300. The highest, on the other hand, is 850. Here’s a general look at what’s considered “good” and “bad”
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Excellent
For the most part, if you have a credit score above 750, you’ll do fine. And on the other end, just make sure your credit score never falls below 600. For reference, the average credit score among Americans is around 700.
How to Build Your Credit Score
Like most things in life, developing a good credit score takes time. One of the easiest ways to do it is by using a credit CARD responsibly.
Now, here you might be thinking “wait but Jeff, I’ve been told my whole life to AVOID credit cards… now you’re telling me that I should GET one? That doesn’t make sense.”
It’s true that credit cards can be dangerous, but that’s only if you get into debt. As long as you use you’re credit card responsibly, you’ll be fine. In fact, on top of building your credit score, you might even get some perks (like cashback rewards or travel points).
Some key things to remember when using credit cards are:
- Never use your credit card to buy something you don’t have money to pay for
- Credit card debt is one of the worst forms of debt possible with skyscraper rates (20% a year is insane!!!)
- Always check your bank accounts before buying something with a credit card and make sure you have enough money to pay it back immediately
- Do not just pay the minimum payment, pay the full balance
- Make small purchases that you can afford every month and immediately pay off the balance (the FULL balance)
Follow these tips and you’re well on your way to building a great credit score!
The OTHER Way
Remember what I said about how building a credit score needs to take time… I (kind of) lied there. There’s actually ANOTHER way to build your credit score which is way quicker and way easier. The caveat here is that this only works for people who have a parent/guardian/relative with a great credit score.
What you can do (if you meet the above caveat) is ask to get added as an “Authorized User” to said person’s credit card. This basically lets you gain access to all of the other person’s credit history without having your own credit history. So if the person you’re piggybacking has a great score, you’ll immediately get a good one too.
If you’re still curious, here’s exactly how the process works:
- A friend or family member adds you to their credit card account as an authorized user.
- The credit card account gets added to your credit reports, just like if it were your own account.
- The issuer gives updated account information to the credit bureaus on a monthly basis.
- Your credit standing improves if the account owner has on-time payments, low credit utilization and other signs of financial responsibility.
- Your credit gets hurt if the account holder behaves irresponsibly.
- You can get an account with negative information removed from your report, since you aren’t responsible for making payments. (WalletHub)
Again, there are upsides and downsides to everything. If the person you’re piggybacking makes a poor payment, that’s reflected on YOUR record. On top of this, some credit bureaus don’t treat an authorized user as part of the same account, so your credit score won’t actually increase.
Still, being added as an authorized user is a quick way that you can potentially build up your credit score without having existing credit history.
In life you’ll run into a few things that seem insignificant but actually have a HUGE impact on how you live… your credit score is one of those things!
As a quick recap:
- Your credit score is personalized grade that measures how good you are at paying back money
- Under 600 is a bad credit score and over 750 is good
- You can build your credit score by using a credit card responsibly for a long time
- OR by piggybacking someone else’s good credit (by being added as an authorized user)
So what are you waiting for? You know that you need a good credit score to succeed in your personal finances and you know how to achieve one… get out there are starting building your credit score now!
Thanks for reading through this post about credit scores and thank you for following along! If you’re a Canadian Student, check out the Ultimate Canadian Student’s Guide to Personal Finance! To learn more about me, head over to this link here. If you want to get exclusive updates and tips, drop your email in the “get updates” box (might have to scroll up a bit.) Let me know your thoughts and suggestions in the comments!
Jeff is a Harvard 2025 student passionate about making smart financial decisions both in school and in the workplace so that he can spend more time doing what he loves (like playing golf, spending time with family, and travelling). He has experience working in the financial industry and enjoys sharing all things personal finance, academic, and golf-related. Outside of blogging, he loves to cook, read, and golf in his spare time.