What is credit and how do I get it?

The Essential Guide to Understanding Credit

Credit scores are so important to U.S. citizens, yet 14% of the population is “credit invisible”. This means they have never received a line of credit or borrowed money in the past seven years. While most people aren’t interested in working towards a perfect score of 850, there are major disadvantages to having little to no credit on your record. FICO and Vantage are two of the most common scoring models and they range from 300 – 850. As of 2019 the average FICO credit score is 695 and the average Vantage score is 673. Even if you aren’t planning on purchasing a home or taking out any major loans, your goal should be to have a credit score over 650. This isn’t an iron clad threshold, but consumers with a score below 650 are viewed as higher risk customers who are more likely to default on their payments. A low score qualifies you for the highest interest rates for credit card companies, bank loans, or car purchases if you are even approved. A common practice in the rental industry is landlords pulling credit scores and denying applicants with low scores or even charging a higher security deposit. Cell phone companies check credit scores before providing service and may require you to choose a prepaid option if you can’t get approved. Insurance companies are notorious for raising premiums for covered individuals with below average credit scores due to a predicted risk factor. Anyone looking for a job should be greatly concerned that half of all U.S. employers use credit scores when considering applicants. For these reasons, and many others, credit scores effect our lives in a big way.

Advantages to Building Credit:

There are advantages to building credit and raising your score as high as possible. An obvious advantage of an excellent score (720+) is being approved for the best possible credit cards. For more information on what to look for in your credit card search, take a look at https://molentax.com/what-to-look-for-when-selecting-a-credit-card/. Generally, a great credit card will offer low interest rates and enticing rewards. A high score will make you more hirable to employers, pay lower insurance premiums, and even allow you to rent a nice house or apartment. First time homebuyers are greatly influenced by their credit scores when applying for a mortgage. Very few applicants are accepted with a below 620 score, and the best interest rates are given at a score above 760. Entrepreneurs looking to fund their business through a small business loan should have a minimum score of 550 before applying, but this low of a score will mean higher than average interest rates and monthly payments. These are just a few of the benefits to raising your score, but the key idea is that a higher score will save you money.

How Do You Raise Your Score?

There are several things you can do now to get a short-term increase. Pay off debt, call a credit specialist, dispute any errors on your credit report, negotiate terms with creditors and collection agencies, and try out Experian Boost to get a quick bump up in your score. Creditors report your balance due on the last day of your monthly statement. By lowering this amount due from the previous month, the creditor will report the decrease in your total utilization rate. There are many reputable credit counselors that work with clients to understand credit and will assist in contacting creditors and collection agencies to dispute any derogatory marks or missed payments. If you don’t need that level of support, it is still important that you review your credit report and dispute any errors that are bringing down your score. Starting a dispute is as simple as logging into the reporting agencies website and disputing any misinformation. If you’re in a hardship situation and trying to recover, it is important to call any creditors and collection agencies to inform them of your situation. This way you can negotiate the terms of paying off the debt and plan the removal of these marks from your credit report. Experian Boost is an easy way to strengthen your credit score by adding payment history from bills such as phone and internet. This may not give you an immediate boost in score but is certainly worth a try.

How to Build Your Credit:

Building a strong credit score takes time and understanding. The first step to long-term credit success is knowing what your score is and how it is calculated. I recommend checking out Credit Karma, Credit.com, or your bank’s credit score service to see a detailed breakdown of your score. Making payments on time is one of the largest factors FICO uses to calculate your score. Paying at least the minimum amount due every month on all your credit accounts will improve your score unless you have a perfect 100% payment history. This portion of your score also includes any accounts that have been sent to collections, so it is important to deal with these situations as soon as possible. Credit card utilization measures your total debt against total credit made available to you. By paying off enough debt to have this calculate below 30% or increasing a current line of credit, your score can improve dramatically. The number and type of credit accounts in good standing will show creditors that you are experienced and responsible. For example, having 11 or more credit accounts including credit cards, student loans, mortgages, car loans, and personal loans that are in good standing will positively impact your score. Total length of credit history is treated as an average of all credit accounts. The best way to increase this is by avoiding opening new lines of credit, as this will bring down your average. Another issue with opening too many new credit accounts in a short period of time is hard inquiries. Hard inquiries are added to your credit report when lenders check your credit score because you send them an application. Each inquiry typically stays on your credit report for around two years, so it is important to be intentional when applying for credit in any form.

Benefits of an 800 credit score:

When you achieve an excellent credit score you should take advantage of the many perks associated with excellent credit! Only 20% of people have a score of over 800, so falling into this category means you will be approved for the absolute best benefits creditors have to offer. Call up any creditors that are charging higher than average interest rates and negotiate more favorable terms or apply for a new account with better rates and a higher limit. There are premium credit cards available to high scorers that offer exclusive benefits such as member lounges, free hotel nights, and personal concierge services. Refinancing any loans or mortgages you have will give you smaller monthly payments, and less interest spent overall. It might make sense to negotiate home and auto insurance rates with your newfound credit worthiness. Get the best possible mortgage rate on your dream home, a sweet deal on a new car, or get that small business loan approved! There are endless financial benefits to a pristine credit score, but it won’t happen overnight. Building credit is a lifelong process that requires knowledge, planning, and most importantly self-control.

 

The Molen & Associates Difference

Mike Forsyth

“Super helpful and timely. This is our first year with them and we look forward to trusting them with our taxes and business books for years to come.”

Caitlin Daulong

“Molen & Associates is amazing! They run an incredibly streamlined process, which makes filing taxes a breeze. So impressed with their attention to detail, organization, and swift execution every year. Cannot recommend them enough!”

Sy Sahrai

“I’ve been with Mr. Molen’s company for few years and I felt treated like family respect and dignity. They are caring, professional and honest, which hard to find these days. Love working with them.”

Understanding the K-1 from Form 1065: What Partnerships Need to Know

What Is a K-1 When Filing Taxes? If you’re in a partnership or multi-member LLC, one of the most important tax documents you’ll receive each year is a Schedule K-1 (Form 1065). This form reports your share of the business’s income, deductions, credits, and other...

Unlocking Real Estate Losses: Smart Tax Strategies for Investors

Real estate is more than just a path to passive income—it’s one of the most powerful tools in your tax-planning toolkit. When used strategically, real estate investments can generate significant “paper losses” that help lower your taxable income. But if the rules...

The Most Overlooked Small Business Tax Deductions—and What You Should Track Year-Round

What Do I Need to Keep Track of for My Small Business Taxes? Running a small business comes with a long to-do list—and tracking tax deductions is one item you can’t afford to ignore. Good recordkeeping and a solid understanding of deductible expenses can save you...

Year-End Tax Planning Strategies to Reduce Your Tax Bill Before December 31

Year-End Tax Planning Strategies to Reduce Your Tax Bill Before December 31 What you do before December 31 matters more than most people realize.Once the year ends, many of the most powerful tax-saving strategies are no longer available — no matter how good your...

Will You Receive a $2,000 Tariff Stimulus Check in 2025? What We Know So FarBy Molen & Associates | December 2025

You may have seen headlines or social media posts this fall about a possible $2,000 “tariff stimulus check”—a rebate proposal by President Donald Trump to send cash payments to Americans funded by tariffs on imported goods. Naturally, many of our clients have been...

Setting Up QuickBooks for Your Small Business: A Step-by-Step Guide

Why QuickBooks Setup Matters QuickBooks is one of the most powerful tools available for small business bookkeeping—but it’s only as good as the way it’s set up. A sloppy or incorrect setup can lead to misclassified income and expenses, messy financials, and costly tax...

Tax Planning for Business Owners: Moves to Make Before Year-End

Business Tax Planning You Should Know Business tax planning is the proactive process of analyzing your company’s financial position throughout the year to reduce your overall tax liability. It’s about more than just preparing your tax return—it’s about making...

Retirement and Taxes: Tips for Maximizing Social Security and Managing RMDs

Retirement should be a time of financial peace—not unexpected tax bills. But many retirees are surprised to find that their Social Security benefits are taxable, or that Required Minimum Distributions (RMDs) can push them into higher tax brackets. With a little...

Why Corporate Accounting Is the Foundation of Every Successful Business

In today’s competitive business landscape, strong financial management isn’t optional — it’s essential. Whether you’re a small startup or an established corporation, accurate and strategic corporate accounting helps you understand where your business stands, make...

Is Your Business Audit-Ready? Start with Proper Financial Statement Preparation

When it comes to business finances, one of the most important steps in maintaining transparency and compliance is Financial Statement Preparation. Whether you’re a small business owner or managing a growing corporation, your financial statements serve as the...

Request an Appointment Today

10 + 1 =

Call us at

Share This