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TDCI Shares Information on Understanding and Maintaining Good Credit Scores

NASHVILLE — As the economic uncertainty from the COVID-19 pandemic lessens, Tennesseans may be more inclined in the weeks and months ahead to spend money to start new businesses and make major purchases like new homes or vehicles. For nearly all Americans, making a major purchase requires the use of loans or credit. Unfortunately, many consumers may not know the basics about credit and the importance of having and maintaining good credit scores.

To help consumers, the Tennessee Department of Commerce & Insurance’s (TDCI) Division of Regulatory Boards is sharing a primer on how credit scores are created and tips on how to maintain good credit. TDCI oversees the licensure of credit and debt collection professionals through the Collection Service Board, Debt Management Program and the Credit Services Business registration program.

“Credit plays a vote role in creating a healthy economy,” said TDCI Assistant Commissioner for Regulatory Boards Alex Martin. “We want consumers to be informed about how credit works so they can continue to help Tennessee thrive and be a national economic leader.” The following information explains credit scores, how are they calculated and how consumers can improve their scores.

  1. What are credit scores? There are three (3) nationwide credit reporting agencies (CRAs): Equifax, TransUnion and Experian. Each CRA issues a credit score corresponding to your credit report. Credit scores are numbers that indicates your creditworthiness or how likely you are to repay your debt. The information used to determine credit scores are obtained from your credit report. Federal law allows you to get a free credit report every 12 months from each credit reporting company. Visit Annual Credit Report to learn more.
  2. What do the numbers mean? Credit scores range from 300-850 and the higher the score, the greater the likelihood you will repay a debt. The ranges may vary slightly, but typically scores are graded on a scale like the one below: 
    1. 300-579 - Very poor 
    2. 580-669 - Fair 
    3. 670-739 - Good 
    4. 740-799 - Very good 
    5. 800-850 - Exceptional
  3. How are credit scores calculated? There are five (5) major factors that contribute to credit scores. They are listed below, along with a description and the percentage of the total score they account for: 
    1. Payment History (35%). This is based upon how consistently you have paid past and present accounts. A history of late or missed payments will lower your score while paying on time will increase it. 
    2. Amounts Owed (30%). This looks at your credit use and whether you might be over extended. It is not necessarily bad to have accounts with balances but if you are using a high percentage of your available credit this will lower a credit score. 
    3. Length of Credit History (15%). This takes into account your oldest accounts, newest accounts and an average of how long all your accounts have been open. Generally, a longer credit history will improve your score because it presents a lot of information for lenders to base their decisions on. 
    4. Credit Mix (10%). This considers the types of credit you have – credit cards, installment loans, mortgage loans, etc. You do not necessarily need every type but it can improve your score if you have a blend of different types. 
    5. New Credit (10%). This looks at how many new accounts have been opened, especially in a short period of time. One (1) new account may have limited impact on your score while three (3) or four (4) in a short period of time will likely lower your score.
  4. Why do credit scores matter? Lenders, utility companies, landlords and even employers use credit scores as evaluation tools. Having low credit scores could keep you from getting a loan, an apartment or even a job. Lower scores may also cause you to have to pay a higher interest rate if you obtain credit, or a higher deposit for rent or utilities. These things could all represent a financial loss to you.
  5. How can I improve my credit scores? There are several things you can do: 
    1. Pay your bills on time. If you are struggling, contact your creditor(s) and discuss your situation with them as they may be able to help. 
    2. Review your credit file annually to make sure your accounts are showing accurate information. Since there are three (3) CRAs, be sure to check your file with each agency. 
    3. Use credit wisely to avoid becoming over extended. Try to pay off the balance each month on revolving accounts (credit cards). If you cannot pay them off, try to maintain balances that are 50%, or less, of your credit limit. Avoid the temptation to borrow for things that are not necessities. For example, just because you paid off your car does not mean that you need to turn around and immediately get a loan for a new one. 
    4. When you have paid off a credit card, it is not necessarily a good idea to close it. Use it every six (6) months for a small purchase and immediately pay it off again. Having that long-term history on your credit report will help improve the score. 
    5. When you borrow, consider the best way to borrow. Do you need a revolving account (credit card) that you can draw against multiple times, or would you be better off going to your bank or credit union and getting an installment loan for the total amount you need? Keep in mind that having different types of credit impacts your credit score, and that you may be able to obtain significantly different interest rates (lower or higher) on different types of borrowing.
    6. Avoid opening several new accounts in a short period of time. If you sign up for every credit card that offers some type of perk, you may save some money on your initial purchase but you may lower your credit score and cost yourself more money in the long run. 
    7. It will take time to get the improvement in your credit score that you want. Do not get discouraged, keep working on it and you will get there!
  6. Conduct research to help you understand more about your credit scores. There is a lot of information available free of charge, so avoid any source that requires you to pay for credit information. Not everyone’s credit journey will be the same, so find those sources that you feel will help you the best.


About the Tennessee Department of Commerce & Insurance: Fostering fair marketplaces, public safety, and consumer education that promote the success of individuals and businesses while serving as innovative leaders. Our divisions include the State Fire Marshal’s Office, Insurance, Securities, Regulatory Boards, Tennessee Law Enforcement Training Academy, Tennessee Emergency Communications Board and TennCare Oversight.