Your Credit Score

Sheri here – 

In the last blog Your Credit Report Matters, we talked about your credit report, why it matters and how to get it. Your credit score is based on the information in that credit report.

Several things influence how good or poor your rating is.  Ok, it’s just a number, but, that number can cost you money!

What affects your credit score

The most common credit rating is a FICO score. FICO is an abbreviation for Fair Isaac Corporation, which was the first company to offer a credit-risk model with a score Wikipedia

What goes into that rating?

  • Your history of paying bills on time, which shows how responsible you are – counts for 35% of the rating.
  • How much you owe compared to the amount available to borrow, the higher the amount, the lower the score and vice versa – comprises 30%.
  • The age of your longest held credit account shows your stability with credit over time. The longer the time, the better it is – counts for 15%.
  • Have you recently opened new accounts, which may show a change in some of your credit habits – makes up 10%.
  • Finally, do you have a variety of debt, such as installment loans, credit cards, mortgage, student debt, etc., which shows how you handle different types of credit – comprises 10%

Within the rating process, these are all weighted and they all add up to give a picture of how credit worthy you are.

The higher the score, the less risk you are perceived to be.  The impact can be lower interest rates and the higher available credit that you may qualify to get.  A lower credit rating works in reverse and make the difference in getting or not getting a major loan or credit card.

Of course, if you never use credit for anything, you won’t have a credit rating.

Having no credit history might not make any difference unless you have any plans to buy a house or secure a business loan. For those reasons, you want to assure you have nurtured an excellent rating.

What does the number mean? 

Your credit rating is a number, if you are:

– Between 800 – 850 – Exceptional credit risk

– Between 740 – 799 – Very good credit risk

– Between 670 – 739 – Good credit risk

– Less than 669 – Fair to Risky credit risk

Your credit score can make a difference to the quality of your life, no matter your age or life circumstance.

Protect it, be responsible. It is easy to mess it up and a lengthy and painful process to repair it.

Fixing your credit score

Be careful of those who may tell you that they will “fix” (opens in a new tab)your credit rating for you. While it may seem to be a quick fix, in the long run, that effort may either make no difference or make things worse or cost you more money in the long run.

Fixing your credit score starts with understanding and addressing the underlying problems.

Know your money priorities, including setting aside money for contributions and investing.  Avoid using credit cards for everyday or impulsive purchases.  

Pay down your existing balances to less than 30% of the credit available.

Make your payments on time.

Use your credit wisely and it will serve you well.



P.S. Drop a comment below and let me know what your money goals are and how I can help!

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