Unraveling the Mystery of Credit Scores: A Physician's Guide

By: Rikki Racela, MD

Published: Jul 18, 2023

📂 Physician Perspectives

Written for:

✅ Residents and Fellows

✅ Early Career Physicians

✅ Mid Career Physicians

✅ Established Professionals

Let's face it: few things in life carry as much weight in the financial world as the notorious credit score. It's the magic number that banks use to assess your creditworthiness. The higher the score, the more appealing you are to lenders and, more importantly, the lower the interest rate they'll offer you. Therefore, it makes sense for everyone, from newbies in the financial world to seasoned professionals, to understand and optimize their credit scores.

What Exactly is a Credit Score?

Before we delve into credit score optimization strategies, let's pause and clarify what a credit score really is and why it's so vital to lenders.

Simply put, a credit score is a numerical representation of your reliability as a borrower. The FICO score, developed by Fair Isaac Corporation, is the most commonly used credit score. Bill Fair and Earl Isaac, the company's founders, were just engineers and mathematicians doing research at Stanford when they came up with this ingenious idea. Since its inception in 1956, FICO has continually fine-tuned its scoring model to reflect the ever-changing dynamics of credit behavior. Currently, FICO scores range from 350-850, with 760 being the threshold for the most desirable rates.

Steps to Understanding and Improving Your Credit Score

1. Review Your Credit Report

To begin with, request a free copy of your credit report from all three major credit bureaus: Equifax, TransUnion, and Experian. You can do this through www.annualcreditreport.com, the government-approved site, which allows you to access your credit reports for free once a year. Be cautious of other sites advertising "free" credit reports; they often come with strings attached.

Once you have your credit reports, review them for any discrepancies or fraudulent activity. If you spot anything unusual, you can dispute the information online or freeze your credit to prevent further misuse.

Note: Credit report discrepancies are not uncommon. It's worth spending some time to review your report and dispute any inaccuracies. It could significantly impact your credit score!

2. Pay Your Credit Cards on Time

Your payment history contributes to 35% of your FICO score. This simply means that timely bill payments can significantly impact your credit score. Even a single late payment can affect your score, with the impact increasing with the number and duration of missed payments.

3. Maintain a Low Credit Utilization Ratio

This factor accounts for 30% of your FICO score. Credit utilization ratio measures how much credit you're using against your total available credit. Here's a tip: The less you use of your available credit, the better your score.

However, it's important to note that while increasing your available credit might seem like a good strategy, every application for new credit prompts a 'hard inquiry', which can slightly lower your score.

4. Preserve Your Credit History Length

Credit history length impacts 15% of your score. The longer your credit cards and other forms of credit stay open, the better your score. Hence, it's generally advisable not to close your credit card accounts, even if you're not using them.

5. Keep a Diverse Credit Mix

A variety of credit types (credit cards, retail cards, real estate loans, and open installment loans) contributes 10% to your FICO score. If you've managed different types of credit well, lenders will likely consider you a good credit risk.

6. Minimize Recent "Hard" Credit Inquiries

Hard inquiries from lenders can have a small impact on your credit score. If you're planning a major credit application, like a mortgage, within the next two years, it might be best to limit the number of new credit applications.

Pro tip: "Hard inquiries" drop off your report after two years. However, when you're planning a significant financial move, every point on your credit score counts!

The Result? A Credit Score You Can Be Proud Of

By understanding and implementing these strategies, you can effectively manage your credit score. Remember, the journey to an impressive credit score requires time, discipline, and strategic financial management. It's a long game, but the rewards are worth it!

The journey to an impressive credit score requires time, discipline, and strategic financial management. It's a long game, but the rewards are worth it!

Rikki Racela, MD ⇨

Member, Andwise Medical Advisory Board

Dr. Rikki Racela, MD, is a neurologist based in Englewood, NJ, with a broad range of specialties and a deep commitment to patient care. He graduated from Princeton University in 2003 with a major in Molecular Biology and a minor in Neuroscience, before completing his medical degree at Rutgers-Robert Wood Johnson Medical School in 2007. Dr. Racela further honed his expertise in neurology at NYU School of Medicine, where he notably served as chief resident, and completed a fellowship in clinical neurophysiology. His professional journey has been distinguished by a return to New Jersey, where he joined Bergen Neurology Consultants and contributed significantly to Englewood Hospital as the stroke director from 2014 to 2015.

Dr. Racela's practice at Bergen Neurology Consultants involves a comprehensive array of diagnostic and therapeutic services, including cognitive testing, EEG, EMG, evoked potential studies, and sleep studies, among others. He treats a wide range of neurological conditions such as ALS, Alzheimer's Disease, epilepsy, headaches, multiple sclerosis, neuropathy, and stroke, to mention just a few. His dedication to neurology is further underscored by his board certifications in neurology and electrodiagnostic medicine, alongside his recognition within the medical community, including being named a Top Doctor by Bergen Magazine in 2019.

Beyond his clinical roles, Dr. Racela is passionate about financial literacy for physicians, contributing columns to The White Coat Investor, highlighting the importance of financial knowledge in the medical profession. His diverse interests and accolades, including leadership roles and advocacy for physician education, make him a prominent figure in his field

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