Credit Scores
By Lucy Ding
Adapted by Nicolette Lamanna
Credit Scores 101
Credit scores estimate how likely you are to repay borrowed money.
Credit scoring companies take your information and plug it into an equation to produce your credit score.
A low credit score means that you may have a higher interest rate or have to put money down as a deposit.
You may also have to pay more for car insurance, make deposits for utilities, and have more trouble finding a rental home/apartment.
A higher score gives you lower interest rates and access to more credit products.
What goes into a credit score?
Paying bills on time.
Paying all your bills on time is rewarded and having a bill that’s more than 30 days late can stay on your credit history for years!
How much you owe.
Aka “credit utilization.” Try to avoid using more than 30% of your credit limits. Lower is better!
Credit age.
The average length of your accounts and the length of time that you’ve had credits. The longer you’ve had the account, the better!
Credit mix.
Having different types of credit. For example, a traditional loan and a credit card would be a more diverse credit mix than just a credit card.
Credit score ranges: what is a good credit score?
A credit score is always a three-digit number. Do your best to get it into the green sections!
Know that creditors set their own guidelines on what is a good credit score, so these are just rules of thumb.
Source: NerdWallet
What do lenders look at?
Your Credit Score. This is reported by one of the three major credit bureaus: Equifax, Experion, and TransUnion.
Your Credit History. This is a record of your responsible repayment of debts. It comes from multiple different lending sources.
Your Income. Goes without saying – the higher the better.
Your Debt to Income Ratio. This evaluates whether you have enough income to repay a loan along with the other debts you have.
What to do about your credit score
Check your credit score
Choose one service and stick with it – your credit score can vary across different institutions
You can find a free credit score check online on many personal finance websites
Remember: your score will fluctuate and have variation. Just try to keep it in a healthy range and you’ll be fine!
1. Pay for everything on time!
Don’t be late – this is one of the top things that can negatively affect your credit score.
2. Use less than 30% of your available credit.
This is your credit utilization - how much of your credit limits you use.
3. Keep an eye on everything else.
Types of accounts
Average age of accounts
Recent credit applications
Total balances and debt
4. Check your score regularly.
It won’t do any harm and can alert you to problems. It also lets you see your progress!