Updated: Aug 29, 2021
April 4, 2021, JW
Looking to buy a car? A house? A boat? Or do you just need a little extra money? You may even just want to consolidate your debt or get a credit card. Yeah, the banks will be looking at that magic three-digit number. You guessed it – your credit score! Some call it your FICO score but it’s all the same thing. Your credit score plays a huge role in everything when it comes to your credit. And some people like you may not know too much about it. But, you should!
Let’s start with the basics. Your credit score basically lets a financial institution determine how risky it will be to lend to you. Lending is not the only purpose it serves though. But, don’t get your credit score confused with your credit report! Your credit report can help an employer determine your eligibility to work for them, or even if an apartment will allow you to lease with them. It provides a detail of your payment history, current and past debt, any delinquent or past due bills, bankruptcy history, etc. This information is then used to determine your credit score. Some factors that determine your score are:
· The balances on your current accounts
· The length of your credit history
· Recent inquiries or requests for new credit
· Types of credit accounts you hold (installment loans like mortgages and car loans, revolving credit)
· Public records
Some of this is misconstrued but it is important that you understand what effects your score so that you can focus on certain areas to improve it. You probably didn’t even know this but I’m here to tell you honey!
· Payment history makes up 35% of your score
· Amounts owed and balances makes up 30% of your score
· Length of your credit history makes up 15% of your score
· The type of accounts you hold (credit mix) makes up 10% of your score
· Finally, new credit makes up the last 10% of your score
Think about that and we will circle back to it in a later post…
Your credit score ranges from 300 to 850. So, from poor to excellent credit. Higher scores can help you save in the future with lower interest rates and fees. There are three main credit reporting agencies: Equifax, Experian, and TransUnion. It is VERY important that you make sure the information from these agencies is correct. We want you to have an excellent credit score so we don’t need these agencies to be lying about the debt you actually have, okay? Alright.
This post was just to introduce you to credit scores and credit reports. We’ll talk later about how to get this information and how to increase your score and worthiness...because that’s a whole other story.
But, Happy Easter everyone!
JW x FW