UNDERSTANDING YOUR CREDIT SCORE

//UNDERSTANDING YOUR CREDIT SCORE
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Understanding your credit score is simple.

UNDERSTANDING YOUR CREDIT SCORE

How to go about Understanding your credit score.

Understanding your credit score can be extremely beneficial to you. Many people know what a credit card is and the negative stigma that goes with them, but how many people truly know what a credit score is? Credit cards can generate a negative response in a lot of people because they are easily abused. Some try to avoid ever getting approved for one so they don’t have to deal with the temptation that comes along with having such easy access to money that isn’t really theirs. Unfortunately those same people realize later on in life, when they try to apply for a mortgage loan or get a new car, that they needed some credit history to help get them approved or to save them money on their loan.

 

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The Topics to Understanding your Credit Score

 

So to help you in understanding your credit score, we are going to go over a few things to help in understanding your credit score. Not everyone knows the impact that their credit score can have on their life. It is very important to know how and why understanding your credit score should mean something to you. Lucky for me, I learned at a young age the importance of building credit and establishing my credit score. Unfortunately for me, every once in awhile, I would have a lapse in how my credit should be used. Which is why I am currently in debt and having to learn from my mistakes to get out of debt. Here are the topics we are going to cover to help you in understanding your credit score.

 

  • How can your credit score affect your life?
  • What are the benefits of having a high credit score?
  • What are the disadvantages of having a low credit score?
  • Figuring out what your credit score is?
  • How is your credit score calculated?
  • Ways to improve your credit score?
  • How can your credit score save you money?

 

As you can see there are many things to look at when discussing your credit report. When was the last time you checked your credit score or your credit report for discrepancies?

 

How can your credit score affect your life?

 

Approval for an apartment

Your credit score can determine if you are able to get an apartment or what your deposit will be. It could also mean you’ll need a cosigner to get approved.

Approval for an auto loan  –  Depending on your credit score you may not be able to get a loan for that new car you want or maybe even need!

 

Approval for a cell phone

That’s right, even cell phone service providers do a credit check to determine if you are reliable enough to make your monthly payments on time. They could refuse to give you a cell phone plan due to a poor credit score.

 

Approval for credit cards

Your credit score can determine wether or not you get approved for a credit card or not. Your credit score can also determine how high, or low, your interest rate is on those credit cards.

 

Getting a new job

Depending on your job, they will pull your credit score to see how dependable you are. Having an extremely poor credit score could indicate you may be a risk around large sums of money. Places such as a bank, or picking up large business deposits could be hard to get jobs at.

 

Utility deposits

When you move into a new place, depending on you credit score, you might have to pay a larger deposit with a lower credit score.

 

What are the benefits of having a high credit score?

 

Lower interest rates

The higher your credit score, the lower your interest rates are when you get a loan or a credit car. A high credit score shows that you are dependable and will more than likely be able to make your payments and make them ON TIME.

 

Higher credit limit

Having a high credit score will allow you to have a higher credit limit when you apply for credit cards. Now, if you struggle with self-control, you can ask them to reduce your credit limit so that you aren’t tempted to use all of what they gave you. Credit cards can be great to help you in emergency situations so having a higher credit limit could be beneficial.

 

Lower car insurance rates

Sometimes having a high credit score can help lower your car insurance rates when you apply with a new company.

 

Avoid expensive deposits

If you have a high credit score it can help you avoid having to pay deposits on things like renting an apartment. It can also be cheaper setting up utilities, and starting a new cell phone plan.

 

What are the disadvantages of having a low credit score?

 

Higher interest rates

A low credit score can cause you to have higher interest rates on things like your credit cards, your car loans, and your mortgage.

 

Rejected credit card applications

If you have a low credit score, you could be rejected when applying for credit cards or any type of loan. Companies use credit scores to determine how risky you are to lend money to. A low credit score indicates that you may have a history of missing your payments.

 

Refused cell phone plan

You can be denied a cell phone service plan with major carriers if you have a low credit score. With a low score they may require you to pay a higher deposit to open new lines. They could also deny you a phone plan all together.

Harder to get a job

With a low credit score you could have a hard time finding a job. Some employers don’t want to risk hiring someone with an extremely low score, especially when those employees are responsible for handling money. They believe a low credit score could indicate that you may have more motivation to steal to help get yourself out of debt. (Not that anyone is implying people with low scores steal!)

 

Difficulties getting a car loan

Having a low credit score could make it difficult for you to get a car loan. Sometimes with a low credit score they will require you to have someone with a better credit score cosign on the loan for you. Whenever they cosign, they are just as responsible, for making sure the vehicle is paid, as you are. (Yikes!)

 

Figuring out what your credit score is?

 

There are quite a few places that can help you acquire your credit score. Here are a few of them, some of which I have personally used.

 

Freecreditreport.com

myFICO.com

Equifax.com

Experian.com

TransUnion.com

Ficoscore.com

 

How is your credit score calculated?

 

There are 5 key factors that FICO® considers when determining your credit score.

 

Payment History

This makes up approximately 35% of your credit score. Your payment history is considered from different types of accounts such as credit cards, car loans, mortgages. They also consider public records and collections such as bankruptcies and foreclosures. When they look at your payment history they look at how late you were and how recent you were late. They also check how many missed payments you have, and how much you owed.

 

Amount of Debt

This makes up approximately 30% of your credit score. How much debt you owe is a factor that is considered when determining your credit score. How many accounts do you have open with a balance? Having multiple accounts with a balance could mean that you are more likely to over-extend yourself financially.

 

Length of Credit History

This makes up approximately 15% of your credit score. The length of your accounts helps play a role in determining your credit score. Your credit history length is figured by your oldest account and the average of your accounts combined.

 

New Credit

This makes up approximately 10% of your credit score. The amount of times you’ve made a request for a new account and the amount of new accounts you’ve opened help play a roll in this determination of your credit score. The length of time it has been since opening a new account can also play a roll. It is also taken into consideration when it appears you are rate shopping for just one loan. Your inquires will be grouped together if they all of them fall under a “typical” shopping period. Depending on what FICO® Score version they are using it could be within a span of 14 days or 45 days.

 

Credit Mix

This makes up approximately 10% of your credit score. The mixture of types of credit you have is what they consider for this portion. They look at the types of accounts you are using such as a credit card, a mortgage loan, or an auto loan. This is more important for those who don’t have a lot of the above listed information to base a score on.

 

Ways to improve your credit score?

 

Payment History

Making your payments on time. This is a big factor in improving your score. Delinquencies in your payment remain on your credit report for seven years. So missing a payment will take you seven years to correct.

 

Amount of Debt

The amount of outstanding debt needs to be kept to a minimum. The more you over extend yourself with the use of credit, the more it will hurt your credit score. If you have a lot of outstanding debt, working to lower this will help to raise your credit score.

 

Length of Credit History

Sometimes the only way to improve your credit score is just give it time. The longer you show a record of good credit, the better your credit score will become.

 

New Credit

If you are trying to improve your credit score and you have already established a couple of accounts try to refrain from applying for any unneeded new credit cards.

 

How can your credit score save you money?

 

By giving you better interest rates  –  When you have a higher credit score, it allows you to get a lower interest rate. This really becomes a factor when you are applying for large purchases. These purchases could be a new vehicle or a new home. Just the difference of a little over 1.5% can by the difference between an extra couple hundred dollars a month on a 30 year fixed mortgage. Due to the interest over 30 years it could save you over $50,000 during the length of your loan.

 

If nobody tells you how to improve your score, it could prevent you from doing things later on in life. It’s important to check your credit score and your credit report for any discrepancies. Even the people who report to the credit bureaus can make mistakes sometimes.

 

What are some things you do to help you in understanding your credit score?

 

 

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By | 2016-11-25T23:42:40+00:00 October 13th, 2016|2 Comments

2 Comments

  1. Trip November 3, 2016 at 3:25 pm - Reply

    Very nice details you wrote here. These factors underscore how important financial literacy is to Americans. And yet, it’s not taught as a required subject in our schools?

    How many people have you come across in your life that don’t have an understanding of credit until it affects them in some (usually negative) way?

    • Ryan Wilkins November 3, 2016 at 6:12 pm - Reply

      Thanks I appreciate it! There really are a lot of people that are unaware of the effects their score has on them. It seems like most of the basic needs for surviving as an adult aren’t taught in schools anymore. I’ve come across quite a few. I think the most common thing is when they are young and go to get there first car or apartment. They don’t have any credit built up so they can’t get approved. It happens all of the time!

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