All About Credit

July 1, 2020

by Casey Messer

What is credit? Why is it important? Questions like this are asked all the time. You may be wondering the same thing or even have questions like: What makes up a credit score? or How can I improve my credit? Good credit increases your buying power. With more knowledge on how to grow your score, you can save so much money. Our hope is to educate you further in the world of credit.

So, what is a credit score? In fancy terms, a credit score is the numerical summary of the factors that make up your credit report which showcases an individual’s creditworthiness. In simpler terms, its like a grade of how well one is doing to pay back any debt owed. A low score, say anything below 500, shows lenders that you have somethings going on and improvements need to be made. Anything over 800 shows lenders that you can handle your debt 100%-no problem.

You may wonder, “what does it really matter if I don’t have a good credit score?” Well, the lower your credit score, the higher rate a lender will charge you to borrow money. This is called an interest rate. When it comes to paying a fee to borrow money, obviously, the smaller the better. Overtime, having to pay a high interest rate on a loan you took out, can cost you tons of money.

So, a good score is important because it saves you money. Well how do you arrive at a good or excellent credit score? There are 5 core factors that play a huge role in determining your credit score. Factors like payment history, credit utilization, average age of accounts, account types and inquiries all have specifics that can either hurt or help your score.

These 5 core factors may or may not be foreign to you. For example, when payment history is mentioned, it simply means you need good positive payment history with little or no late payments reported. Another factor like credit utilization, is one that many tend to forget or overlook as important. This makes up 30% of your score. Utilization is referring to the amount of available credit you have. For example, if all your credit card limits total $10,000 and all your balances total $3000, then you are using 30% of your capacity. This means you have 70% available, which is very good for this factor of your score. Other factors like age of accounts, inquires and account types make up the remaining parts of a credit score. Keeping your oldest account open is a tip most may not realize impacts their score. For example, you should always keep your oldest account open so that you do not lose the length of history. If it is something like an auto loan, you cannot really control when it because it closes when its paid off. A credit card, however, you can control. Keep the oldest one open.

So, if you are ready to take the next steps in improving or establishing credit, make time to sit down with one of Centric’s Financial Counselors to create a road map. Ultimately its your money and your life goals that are at stake. Make the decision today to Live Better. To schedule an a appointment with one of Centric’s Certified Financial Counselors, click here.