When is your credit score important? (And when is it not?)

You’re working hard to build a better financial future for your family. That’s a great goal, especially since it’s not always easy. One thing you can do to speed up your progress is to learn what factors deserve your attention first. 

Case in point: your credit score. Building a strong credit score is generally a good thing. But sometimes, other things are more important, like getting a handle on your debt if you’re struggling. Knowing when it’s okay to focus on your credit score—and when other things are more important—could help you reach your financial goals faster.

Achieve is not a Credit Repair Organization and doesn't provide, or offer, services or advice to repair, modify, or improve your credit.

When does your credit score matter?

Your credit score matters when you plan to apply for something that could hinge on having good credit. For 

It’s important to know who uses your credit score because if you don’t have plans to work with them, jump-starting your credit may not matter so much (right now). Here’s who might check your credit score:

• Lenders

• Landlords

• Employers

• Utility companies

• Insurance companies

When is your credit score less important?

It’s smart for most people to work toward a good credit score, but it might not be the most important thing right now. 

If you’re struggling to pay your bills, and you’re miserable because you don’t know how you’ll ever get ahead, it could be time to prioritize your financial stability over your credit standing.  

Sometimes, drastic solutions to big debt problems—like bankruptcy or debt resolution—seem scary because they’re known for hurting your credit. But dealing with your debt could make it easier for you to thrive financially and build good credit in the future. 

Your credit score is just one factor to consider when you’re choosing a debt solution. You should also consider how much you can afford to repay, how strained your budget is, whether you’re willing to give up any of the things you own, how stressed you are every month when it’s time to pay bills, and how long it might take you to dig out of your debt.

Even if you’re considering a strategy that could damage your credit standing, your credit score can recover. Credit scores can change every time the information in your credit report changes, including the passage of time.  

What factors impact your credit score?

A lot of things go into your credit score, but here’s a quick breakdown of the most important parts.

Payment history: 35% 

Late payments, accounts in collections, and bankruptcies on your credit report could lower your score. Most of the time, these marks last on your credit report for seven years (10 years for some types of bankruptcy). 

Accounts closed in good standing stay on your credit report for 10 years after they’re closed, and indefinitely if they’re open. So a good positive payment history has far greater potential to have a positive impact on your credit score.

Amounts owed: 30% 

The total amount you owe affects your credit score, but the biggest impact comes from credit card balances. Credit bureaus (the companies that calculate your credit scores) look at your credit card balances compared to your credit limits. This is called credit utilization. The higher it is, the more it could hurt your credit scores. 

Credit history length: 15% 

Keep your accounts open (as long as you're managing them well) to show a longer credit history, which could help increase your credit score. Your account age is an average. Every time you open a new credit account, your average account age goes down.

Credit mix: 10% 

Where credit scores are concerned, you could score higher if you have experience managing different kinds of credit accounts. For example, maybe you have a student loan and a car loan, or a credit card and a mortgage. For many people, credit mix develops naturally over time. 

New credit: 10%

Applying for new credit could lower your credit score by a few points. The effect lasts for 12 months but diminishes over that time. Some lenders do soft credit checks when you’re shopping around, though, which won’t impact your credit score.) 

If you understand how these factors affect your overall credit score, it’s easier to grasp how focusing on specific areas might benefit you. For example, if you have collection accounts, they are likely dragging your score down. Once you pay off a collection account, it doesn’t hurt your credit score. 

How fast can you rebuild your credit?

You're anxious to rebuild your credit. The amount of time it takes is different for everyone, depending on what caused the low credit score.

If you’re in a lot of credit card debt, for example, your credit score could start to rise the day after you start paying it down. 

Recovering from a lot of missed payments and collection accounts could take longer. Late payments can stay on your credit report for seven years. The clock starts when the account is sent to collections or charged off, which is up to six months after the payment due date. Chapter 13 bankruptcy stays on your credit report for 10 years. During those years, the negative impact lessens, but it doesn’t fully go away until the negative data is finally removed.

If you learn the skills to manage your money and credit accounts while you’re working on shedding your debt, it’s possible to build—and maintain—a great credit score no matter where you are now.

What’s next

• Get a copy of your credit report from each of the three credit bureaus at annualcreditreport.com. 

• Check your credit score for free online (through your bank, credit card issuer, or a free credit score website) to learn what to work on. 

• Talk to a debt expert about your options for dealing with your debt. You might also consult an attorney if you’re considering bankruptcy. Ask them about all the pros and cons, including credit score impact.