Growing up I often heard the term "credit score". I listened as people bragged about how high theirs was or reluctantly admitted to how low theirs was. It was this mysterious number that adults seemed to rely heavily on when it came to...well just about everything. In retrospect I should have paid more attention to it growing up given how important adults made it seem but clearly I didn't. I actually had no real understanding of what a credit score was as I entered adulthood. There was no emphasis on it in school, and no informal education given on it at home. I knew it was important but that was the extent of what I knew.
So fast forward to my sophomore year of college when I found out I was pregnant with my son. I immediately began focusing on how I could provide for this child I was not financially ready for. This lead to many decisions which ended up sending my, barely there, credit score through the floor. I took on financial responsibilities I couldn't maintain and opened accounts that later went into collections because I simply could not pay them. I didn't even care to look into paying them off once the collectors stopped calling.
I did not realize at the time how heavily these decisions had impacted my credit until I tried to apply for a new apartment, buy a car, and open up a credit card account. Each time I was greeted with a polite "You don't have a high enough credit score." or "Do you have anyone who can co-sign for you?" But even then it did not dawn on me to find out more about credit. I just figured that I could pay for things in cash and after a few years my credit score would just fix itself. BOY was I wrong. So my first piece of advise on credit my loves is that it NEVER just "fixes" itself. You have to work on establishing and/or rebuilding your credit and let me tell you it isn't easy; but it can be done through educating yourself, hard work and dedication.
So today the main thing I want to share with you about credit (so you don't make the same mistakes I have) are what credit is exactly and what factors impact your credit score.
So what is this 3 digit number that runs your life?
Your credit score of course!
Your credit score is a 3 digit number that essentially represents your creditworthiness based on files on your credit history.
FICO credit scores can range anywhere from 300 to 850. However there are Industry specific scores (which determine qualification for purchasing homes, cars or acquiring credit cards) which range from 250 to 900.
The first thing you should do when it comes to being more credit aware is make sure you ALWAYS know your credit score. Bad credit is 549 or lower, Poor credit is 550-649, Fair credit is 650-699, Good credit is 700-749 and Excellent Credit is 750 or higher.
Knowing your credit score will help you to determine exactly what you need to do to improve your score. Furthermore it will shed light into why you may not be able to make certain moves financially like purchasing a car or even taking out a small loan to start a business.
You can find out your credit score by requesting a copy of your credit report from any of the major credit agencies (Equifax, Experian and Transunion) all of which give you one free credit report a year. You can also do like I do and sign up for CreditKarma.com to be able to stay up to date on your credit history and credit score.
What influences your credit score?
There are quite a few factors considered by the different credit agencies to determine your credit score. However, the three agencies do have some similar factors used to calculate credit score.
These factors include your payment history, how long you've had credit, the types of credit you have, how much debt you have, credit limits and your usage and any hard inquiries on your credit report.
Payment History deals with the number of accounts on your credit history that have been paid on time or are past due. Many times when you have an account in collections this negatively impacts your credit score in the area of payment history.
Length of credit history refers to how long you have had creditworthy accounts on your credit report. It is important to note that most accounts on your credit report will remain on there for 7 years.
There are 3 main types of credit accounts revolving, installment and open. Revolving accounts refer to those that require different payments each month. They often depend on how much of that credit line you have used in a month. Installment accounts are those with fixed payments dues each month. Open accounts are those that have a amount due in full each month. They differ from revolving and installment because there are required to be paid in full and typically only show up on credit reports if you are delinquent on the account.
It is important to get a copy of your credit report to see what type of accounts you have on your credit history. Doing so will help you to develop healthy credit in the long run.
So my EL-evated tribe there you have it. Your first introduction to the world of credit; what your credit score is and factors that contribute to it. Credit can be an overwhelming thing and often difficult to understand. However, it doesn't have to be. Take the time to learn more about how credit affects your ability to do the things you want to do in life. And if you take nothing away from this Money Monday blog; make sure you at least find out what your credit score is today. Go to https://www.creditkarma.com/ and sign up. Or request your free credit report from either of the three credit agencies I listed above.
We'll be back next week for more on money and creating financial freedom!!!! Stay blessed and stay Elevated!!!
