Making Cents of Credit:
Chapter One — Credit Score Basics

What Is A Credit Score?

Your credit score is the number (often somewhere between 300 and 850) that essentially determines whether or not you’ll get a credit card or new loan, as well as the accompanying interest rate.

Your credit score is also your borrowing history all boiled down to one numerical value. In short, this is actually the score that lenders use to realistically determine how fast (and whether or not you can) pay back borrowed money.

How Your Score Is Determined?

When we say your borrowing history builds your credit score, we mean your history of paying back past or current sources of debt. This can be credit card payments, mortgage payments, car loans, student loans, and more.

When you miss or default on a payment, your score takes a hit and goes down. When you consistently make sufficient payments on time, your credit score gets a boost.

The length of your credit history is also a determining factor. So, if you’ve been making regular payments on-time but haven’t been in debt to those servicers for very long, don’t sweat it. The longer your positive credit history is on record, the higher your score will eventually become.

Here are a few other influencing factors on your credit score:

  • Amounts owed (have you maxed out your credit card? Your debt to income ratio should stay below 50% of your available credit)
  • Credit mix (do you have an ample number of sources weighing in on your history? Do you have installment payments (car/mortgage and revolving payments?)
  • New lines of credit (have you taken on several new sources of debt in a short span of time? Typically your credit score will take a brief hit with recent credit inquiries and lines of credit.)

Why You Might Have Multiple Credit Scores?

Lenders report your payment history to three different credit bureaus: Equifax, Experian, and TransUnion. As a result, your credit score might vary from one model to the next, depending on whether or not your lenders all report to the same bureaus.

That being said, these three bureaus are the ones who compile your payment information and develop a credit score to report to banks and lenders.

If you have further questions on your credit score and how it impacts your financial situation, call Dolaghan Law today at (904) 354-4935! Understanding your finances from a well-rounded perspective, including the implication of your current debt and credit, will empower you to take a more knowledgeable step into tomorrow. We look forward to helping you!

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