#002: Credit Score 101

You may have heard of credit scores before but do you know what a credit score really is? On top of that, how exactly is a credit score determined? And does anyone other than me really care what my credit score is anyway?

Credit Score 101
Your credit score is a statistical number that is used to evaluate a consumer's creditworthiness aka how likely you are to pay debts back on time and in full without anyone having to twist your arm.

Credit scores range from 300 to 850. The higher your score, the more financially trustworthy a person is considered to be. But use caution: just because you have a high credit score today doesn't mean you'll necessarily have a high credit score or even the same credit score a month from now. That's because your credit score is like a living, breathing number constantly adjusting to your financial behaviors.

That's because your credit score is determined by five (5) main factors. They are:

Payment History (35%)Are you paying your bills on time every month?Have you ever been delinquent?Were your delinquencies reported to the credit bureaus?Debt-to-Credit Ratio or Amounts Owed (30%)Are you utilizing more than 30% of your credit limit per credit card?Are you utilizing more than 30% of your total credit limit?Using more than 30% of your available credit, whether that be total limit or per card, can have a negative impact on your credit. Length of Credit (15%)How long have you had access to credit?The older your credit history, the better - it shows your ability to pay on time over a longer period of time and that creditors continue to find you trustworthy to lend to.New Credit (10%)How frequently are you looking for additional lines of credit? Experts recommend applying for new or additional lines of credit once every 12 months. Any more and your credit may take a bigger hit. Credit Mix (10%)Having different types of credit such as installment loans like a mortgage and revolving credit like a credit card can illustrate your ability to handle diverse types of financial debts. 

Who cares about my credit score?
Unless you're in the market for a new credit card, a home, or a car, chances are you may not care about your credit score, but that doesn't mean no one else does. 

Those that may review your credit score include:

CreditorsStudent Loan ProvidersUtility CompaniesInsurance CompaniesLandlordsEmployersCollection AgenciesGovernment AgenciesCourts

Where to find my credit score?
Order a free copy of your credit report from Experian, Equifax, and TransUnion each year and review it for errors by visiting AnnualCreditReport.com. 

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