Your credit score can determine where you live, where you work, your insurance premiums, loans, credit cards mortgages, and bank accounts. This three digit number literally can change your life depending on how high or low it is.
DID YOU KNOW? Some employers will check your credit report prior to hiring you? Much like a creditor, some employers will look at your credit to determine what kind of employee you will be. Unfortunately they may assume a credit report with derogatory items on it means that you are irresponsible.
Insurance companies will check a potential customer’s credit for partially determining what insurance premiums they will
be considered for. Depending on your score, this can consi- derably affect your monthly payment,. You’re probably asking yourself “why is my credit considered when determining my accident risk?” Well, the best comparison example to this common question is the same reason insurance companies offer student discounts for good grades; to them it reflects the driver’s level of responsibility and how the driver makes decisions. No matter how inaccurate or unfair this may sound, it’s true!
Whether you are aware or not, when renting an apartment your credit is also checked. This unfortunately can cause some potential renters to pay very high security deposits in order to move in, or worse, make you ineligible to live there. For many people, these high security deposits are simply out of reach for them, and their once dream apartment is now all but a memory. Lastly, the most common use for your score, which most consumers are aware of, is for the credit based applications. Items such as credit cards, home mortgages, loans, and bank accounts are all based almost entirely on your credit history. The value of your score will determine whether you are approved and what interest rate you will be considered for. The difference between a few percentage points of an interest rate can cost you thousands of dollars! For example, the difference between a 6% and 8% interest rate on a $25,000 car loan over 60 months can cost you and additional $1500 in interest alone!
Your credit score predicts the likelihood of you going 90 days or more late on anyone account on your credit report in the next 24 months. It is a statistical number based on the analysis of your credit file that moment in time. Your credit score is very fluid and moves regularly with the infor- mation that the creditors provide. Your credit score is based on the information contained in your credit report documented by the credit bureaus. Creditors use this number to determine whether or not they want to give you a loan and the probability of you paying on a timely fashion.
You’re probably wondering how your credit score is calculated. This is the most common formula of how it broken down:
35% Payment History
• Timing of delinquencies – was it last month or 3 years ago
• Level of delinquencies – (30, 60, 90, 120 days late)
• Last activity date
30% Amount Owed
• Total Debt
• How many accounts with balances
• Overall installment and revolving utilization • Individual account utilization
15% Length of Credit History
• How old is the oldest account?
• What is the average age of accounts
· Mix of newer or older accounts
10% Mix of Credit
• What kind of credit do you have in your file (mortgages, credit cards, loans, etc.) • The combination of credit (all the same type of credit does not look as favorably as a healthy combination of different types) It’s hard to get someone to be the first to give you a car loan if all you have is one department store card that you’ve had for 2 months
10% Inquiries
• How much new credit are you acquiring
• The time interval between each new credit acquired (acquiring many new credit cards or loans in a short time can affect your score negatively)
• How many new accounts are on file • Inquiries stay on your credit report for 24 months but only affect it for 12 months
