Understanding your Credit Score
Your credit score is important! It can make a significant impact if you are:
Applying for a loan
Applying for a credit card
Looking for a job
Renting an Apartment
Buying or Leasing a Car
Purchasing insurance
Needless to say, many people (lenders, landlords, etc) care about your credit so you should too.
What is your credit score?
A credit score is a number based on the information in your credit reports. It's a number used to represent how likely you are to make timely payments and repay a loan. The scoring system more lenders use is the FICO score.
What's does a good or bad credit score mean?
Credit scores generally fall between 300-850. The higher the score the better your credit, meaning lenders see you as less of a risk. A lower score means lenders see you as more of a risk; it will be harder to get a loan or credit card and you'll probably have to pay higher interest rates. See the above image for the correlation between bad/fair/good and excellent.
What factors are considered in your credit score?
These factors are considered in your credit score:
Have you historically paid your bills on time?
If you have late payments or have accounts put in collections this will likely negatively impact your score.
How much of your available credit are you using?
The goal is to as much money available to you and use as little of it as possible. This is called utilization.
How long have you had credit?
A long credit history helps to boost your credit score.
Have you applied for new credit lately?
If you’ve applied for too many new accounts recently, it can negatively impact your score.
How many credit accounts do you have, and what kinds of accounts are they?
In general, it's a good thing to have established credit accounts. However, too many credit cards can harm your score.
If you're still with me, bravo!! Did you learn anything new? Hopefully you're starting to feel more confident in understanding your credit score.
