August Blog Series: Your Credit Score

A credit score refers to the number that is determined by your credit history. Your score may vary depending on what scoring model is used, most range from 300-850. The most popular model that is used by most financial institutions is the FICO credit score model.

If you haven’t read the first blog of the series, check it out here. It’s a great introduction to credit, and covers the basic overview of credit scores, which we will discuss more in depth in this blog.

As a refresher, a credit score refers to the number that is determined by your credit history. Your score may vary depending on what scoring model is used, most range from 300-850. The most popular model that is used by most financial institutions is the FICO credit score model.

A FICO credit score ranges from 300-850. 300-579 is considered “Poor”, 580-669 is “Fair”, 670-739 is “Good”, 740-799 is “Very good”, and 800-850 is “Excellent”. These ranges are used by lenders when determining if they will lend to you. It can impact your eligibility for all sorts of loans. Typically, people who have a credit score that is lower than 640 are considered riskier and may struggle to be approved by lenders or they may struggle to not be overcharged in interest. If someone with a lower credit score is approved for a loan, the lending institution may attach higher interest rates, require a shorter repayment term, or necessitate a cosigner on the loan.

Your credit score has a large influence on your financial life, it can not only impact loans but also the sizes of deposits for things like smartphone purchases, cable services, utilities, or your ability to rent housing. It can also impact interest rates and credit limits on a credit card.

Now that we understand the importance of a credit score, we should understand how a credit score is determined. As we now know, our credit score is determined by our credit history. That means that the credit reporting agencies (eg. TransUnion) calculate our scores by looking at your payment history, credit utilization, debt, length of credit history, diversity of credit, new credit, and derogatory information. We will explain this more in another blog to be posted later this month where we dive into how to build credit!

Our next step is to find out what your credit score is. If you’re like me, you might be worried that checking your credit score will hurt you. I used to think that checking your credit score would have a negative impact on the score but this is mostly false. There are two types of credit checks: a soft credit check and a hard credit check. Most credit checks are soft, that means it won’t hurt your credit score. However, a hard credit check will hurt your credit score. If you have a credit card, the credit company may have your credit score on monthly statements or offer other ways to access it. You can also purchase it directly from the credit score models like FICO.com, however there are other options as well.

Mary Rigg offers employment coaching and financial counseling services. These trained coaches can look up your credit score — without hurting your credit score — and they can review your credit history, explain your credit score, the impact of your credit history, and even help you get a better credit score!

If you’re interested in receiving these services; connect with someone on our Family and Financial Resource team by calling 317-639-6106.