If you have ever wondered what exactly is a credit score, then you will find this Mominar helpful.
Perhaps you have heard the terms good credit and bad credit, and credit score.
But what does that really mean? In this Mominar I am going to explain it all.
Let’s start with what exactly is a credit score. This is a score that is calculated by how well you pay back loans and bills.
The higher the score, the better your credit. That’s good credit.
A low score is bad credit.
How Do You Find Your Credit Score?
One of the easiest ways to find your credit score is through your bank. If you have a bank account, and you can access it online, you simply sign-on, click on the tab that says FICO Credit Score, and there it is. It is a pretty good guesstimate.
FICO stands for Fair Isaac Corp which developed the predictive analysis model that your score is based on. All you need to recognize is FICO=credit score.
You can also find your score for free through your credit card account, credit score services which you can find online – Just google free credit score – or You can buy a score directly from the credit reporting companies at myfico.com
Credit Score Ranges
The score generally ranges from 300-850 and is calculated using your credit history information from your credit report. More about that in the next mominar.
What makes up your credit history:
- Your payment history: How often you pay your bills on time
- how much debt you have
- have you ever defaulted on a loan – which means you just did not pay it back
- if you have ever filed bankruptcy
In general, credit score ranges are
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Excellent
A credit score is calculated to predict how likely you are to pay back a loan on time.
Why is a Credit Score Important?
Why is this important? Because if you ever want to rent an apartment, get a credit card, lease a car, apply for a home mortgage, anything where you will be making payments for money borrowed before they lend you money or extend you credit, that company wants to know how reliable you are.
You want to be as close to excellent as possible.
You CAN get loans if you have fair or even bad credit, but you are going to be paying a much higher interest rate because you could be a risk.
How Do I Get a Good Credit Score?
So what is the best way to get a good credit score? It is quite simple
Pay your bills on time.
Don’t fall into the trap of easy credit or buy now-pay later.
Don’t buy things on a credit card if you don’t have the cash to pay it back right away. Or in the case of a loan, if the monthly payments are beyond your budget.
Even if you make a minimum payment to a credit card or partial payment to a lender, it will usually hurt you more than it will help you.
And your credit score will reflect that.
The good news is that if your credit isn’t great, you can always improve your credit score. It just requires a decision and discipline.
Financial responsibility is such a huge part of being an adult.
I talk about it a lot.
But Wait, There’s More!
Did you know there is a How To Life Podcast? There is, and I have tons of great information about how to adult like a boss!
I have a few episodes about credit, debt, and money. They are great shows with fantastic coaches to help you learn about these things so you don’t have to guess or worry about it! Check these out:
Episode 6: The Credit Medic to the Rescue. Learn more on credit scores, credit history, credit reports, and the step-by-step on how to repair your credit.
Epsidoe 10: Money Smarts. Learn about money terms and how to start to take smart steps to set up your financial future.
Episode 18: How To Make a Budget and Get Out of Debt. Learn how to make a budget to keep yourself out of debt. If you are in debt, learn how to make a plan to get out of the red and get into the green.