Credit scores explained
What is a credit score? How does it affect your ability to get a loan or rent an apartment? What are the best strategies for improving your credit score to save tens of thousands of dollars over your lifetime? Listen in and get all your questions about credit scores explained.
LGBTQ community and credit score explained
According to a recent Experian survey, 70% of the LGBTQ community cited “credit” as their biggest financial concern. Today we’ll discuss the factors that determine your credit score, including payment history, payment utilization, and overall credit history. We explain how your credit score affects the interest rates you pay, and share a significant amount of the interest we paid annually – before we changed our financial lives.
We offer insight into the free ways to get your credit score, why your credit score may vary depending on the source, and the risks of applying for additional credit that lower credit utilization brings.
Credit Scores Explained for You:
Questions about creditworthiness
1. What is the easiest way to find out my credit score?
The easiest way is with a financial institution where you already have a relationship. On the first day of the second week’s reading, “Determine Your Credit Score,” we linked to a Nav article that lists 150 banks and websites where you can find out your credit score for free. If your financial institution is not listed here and you cannot find your credit score at your financial institution, go to FreeCreditScore.com, owned by Experian.
2. Why is my credit score different depending on where and when I get it?
Each of the three credit rating agencies (Experian, Trans Union, and Equifax) calculate credit scores differently, at different times of the month, and do not all receive the same credit information. There are also two different credit score calculations, the popular and more common FICO score calculation and the Vantage score calculation. Therefore, every credit score is different, although not significantly. For our purposes, you can work off a score or average the three scores.
3. How many points will hard inquiries take off my credit score?
Several factors influence how many points each individual loses on hard credit inquiries. However, for most people, another credit inquiry results in a drop of less than five points in their FICO score. Inquiries can have a greater impact if you have a few accounts or a short credit history. Many inquiries also mean higher risk. Statistically, people with six or more inquiries on their credit reports can be up to eight times more likely to file for bankruptcy than those with no inquiries on their reports. While inquiries can often play a role in risk assessment, they play a minor role. Much more important factors in your score are paying your bills on time and the total debt burden shown on your credit report.
4. Could I apply for more credit, increasing my available credit and decreasing my credit utilization?
Yes, you could, but it’s not advisable. This is because it increases the likelihood that you will take on too much debt and increases your available credit-to-income ratio, which can negatively impact your credit score.
5. What is the best and most efficient way to improve my credit score?
Pay your bills on time, which is the benefit of the gas station credit card tip, and reduce your debt load, which is the benefit of honestly lowering your credit utilization.
Your credit score explained
The basics of understanding your credit score
- A three-digit number between 300 and 850
- Evaluate whether you are worth the risk
The factors that determine your creditworthiness
- Payment history (especially the last 24 months)
- Credit utilization (under 35% is best)
- Credit history
How your credit score affects interest rates
- Higher score = lower interest rates
- Save thousands of dollars over your lifetime
The easiest way to find out your credit score
- Credit union, bank or credit card company
- Free websites (e.g. com)
Why your credit score varies depending on the source
- Three different companies
- Information collected at different times
- Two ways to calculate (FICO, Vantage)
How a Hard Inquiry Affects Your Credit Score
- Single instance = 4 to 5 point drop
- Six or more indicates a desperate situation
Apply for more credit to reduce credit utilization
- Not a good idea due to the risk of over-indebtedness
- The possible long-term harmful effects
Our top strategies for improving your credit score
- Pay bills on time and automate as much as possible
- Pay off loans and credit card balances
- Don’t close traditional cards with a long history
Action steps:
Credit Scores Explained and More:
