Credit Where Credit is Due

Credit scores can be a difficult thing to understand but your credit score is a very important number. It can help you with a lot of different factors in your life. According to CashMoneyLife.com “Credit scores are used for loan approvals, determining interest and insurance rates, when screening for employment and rental applications, and even determining eligibility for cell phone contracts.” So how do you even see your credit score? There are many different websites that allow you to check for free.

Free Credit Reports

Credit Karma is a great site that allows you to check for free and can pre qualify you for credit cards or loans. Annual Credit Check allows you to check your credit annually and offers great tips on how to avoid identity theft. Lastly, Credit Sesame offers great features and an app to help you track your credit score, and give you steps to improve it.

How is Credit Calculated?

You may be asking yourself, “How is my credit score calculated?” Great question. Ryan Guina of Cash Money Life has shown how it is calculated using a variety of factors. Those factors include payment history, amount owed, length of credit history, type of credit, and new credit.

Payment history tracks how well you are at paying back your debt on time. If you have a car loan, credit card or a mortgage, it tracks if you pay on time. If you are late on your payments this will affect your score negatively. Paying on time is a great way to start improving your credit score.

Amount owed refers to how much money you are using from another source. If you have a $5,000 credit limit and are using $1,000 you are using 20% of your credit limit. The lower the better. If you have a lot of debt it can show that you are having trouble paying it back and can lead to problems from other lenders extending you credit or loans.

Length of credit history helps creditors see your track record. Establishing credit and paying it back on time over a longer span can help creditors see a more complete credit history. If you do not have credit already established it is a good idea to open up a simple credit card with a low credit limit. This will help you establish your credit score and improve it early on in your life. Ryan Goodrich of Top Ten Reviews said, “Building a solid credit history and maintaining a high credit score can have a dramatic impact on your quality of life now and in the future when you're considering applying for a loan or even a prepaid debit card.”

Type of credit shows the variety of credit you use. Whether that is credit cards, car loans or mortgages. Information like what type and how often they are used are factored into your credit score. Creditors can also look at how much money you use on each of them and your payment history.

New credit is taken into account for creditors to look at recent activity. If you are taking out large sums money constantly, it may raise a few red flags. Number of credit lines opened and even credit inquiries as well as opening a lot of accounts at once can affect your credit score. It is important that you don’t try to do too much to fast.

Credit may seem like a confusing or scary thing but it is important to know your limits and be responsible. Credit can help you out in a variety of ways in life.

Share with us any tips you have for establishing credit!

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References

Goodrich, R. (n.d.). 5 Reasons to have good credit. Top Ten Reviews. Retrieved from https://www.toptenreviews.com/money/articles/5-reasons-to-have-good-credit/

Guina, R. (2019, March 11). How is your credit score determined? Cash Money Life. Retrieved from https://cashmoneylife.com/fico-credit-report-card-score/

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