4 helpful facts about your credit score

What does your credit score say about you?

Key points

• Your credit score has a big impact on your financial life.
• Your salary and marital status do not affect your credit score.
• You don’t have to have perfect credit to get the best interest rates when you borrow money.

If you were to sit down and make a list of things you think about as an adult that you never thought about as a kid, I bet credit scores would be on this list. However, this small three-digit number has a big impact on your adult life – your credit score determines which loans and credit cards you’ll be approved for, as well as the interest rates you’ll pay to borrow money. the money.

Consumer credit reports and credit scores are relatively new. In the 1960s, computers were used to consolidate and track consumer credit data, and the more than 2,000 credit bureaus that existed across the country at that time were reduced to five, and then to the main three. we have today: TransUnion, Experian, and Equifax. They use two different credit scoring models, VantageScore and FICO^Ⓡ Score.

FICO^Ⓡ Score, named after its creator, the Fair Isaac Corporation, was established in 1989. It offers lenders an easy way to assess your creditworthiness. More details can be gleaned from your full credit report, but seeing where you stand in the range of 300 (bad) to 850 (excellent) is a pretty quick way for a lender to decide if they’ll let you in. to borrow money (and at what interest rate to assess). The number is calculated based on various factors, each with a different weight in the total score: your payment history (35%), the amount you owe (30%), the length of your credit history (15%) , the combination of credit accounts you have (10%) and how often you request new credit (10%). Here are four interesting and useful facts about your credit score keep in mind when managing your financial life.

1. Your income doesn’t matter

Just in case you thought rich people automatically have higher credit scores than those of us who aren’t rich, that’s not the case. Your income doesn’t affect your credit score, nor does it show up on your credit report. The only way your income can impact your credit score is if you have a loss of income and start missing payments on your debts. For example, if you are laid off and can no longer afford to make on-time payments to your credit card issuer, those late or missed payments will be reported to the credit bureaus and your score will drop. Other? Whether you make $30,000 or $300,000 a year, it doesn’t matter what your credit score is.

2. Having a perfect score is not necessary to get the best rates

According to some financial experts, you don’t even have to have an 800 or better to qualify for the best interest rates. Even a score of 760-780 tells lenders that you handle credit responsibly and will repay them, and anything higher is just icing on the cake. In fact, if you take a look at the statistics of best credit cards for great credit, the recommended grade range for approval is 670 (good) to 850 (excellent). There’s no harm in aiming for that 850 (and if you can get there, you’ll be in rare company; according to Experian data, just 1.31% of Americans had an 850 in Q3 2021), but it’s not necessary.

3. Your spouse’s credit rating doesn’t affect yours

When people get married, many of them merge their finances with those of their spouse. But it’s important to note that being married doesn’t matter to your credit score. In fact, another piece of information that does not appear on your credit report is your marital status. There’s only one way to link information, and that’s if you apply for credit together because a lender reviews both of your credit histories. If you have excellent credit, but your spouse only has fair credit and you apply for a mortgage on both of your behalf, your mortgage lender will see this and may approve your application (and determine your interest rate) based on the lowest average score between you. They can get three credit scores for each of you (from the three bureaus) and then assign a rate based on the lower of the middle two numbers.

4. Repaid debts always have an impact

If you have paid the debtit still appears on your credit report and will impact your credit score for a period of time, usually seven years. Bankruptcy, which is the worst thing that can happen to your credit, often lasts 10 years. It may be good to have certain accounts paid off reflected in your score, if they were in good standing and paid off on time, such as a car loan that you paid on time and in full. But if you have a debt that has been collected, even if you paid it off or settled it later, it will still be on your credit report for a while.

Now that you have even more information about your credit score, you’re ready to move forward and achieve your financial goals. If your score needs reworking, don’t worry; there is simple steps you can follow to improve it.