Understanding Your Credit Score

It might be a scary prospect, but having a good credit score is a hugely important part of your financial life. Instead of avoiding it, find out how you can keep tabs on it!

 

Only about half of people under 35 have ever checked their credit score.


This is largely due to fact that millennials have not been financially independent for as long as their parents were, and are less likely to have taken out a major loan. 


This is a big problem though, because your credit score has a serious effect on your how financial institutions view you. Building a good credit score is vital for establishing financial independence in the future.


Here’s some important facts about your credit score and how you can check it.


Credit Scores Are Affected By More Than Your Credit Card


Credit bureaus collect any information related to debt. So even if you don’t have a credit card, if you have ever taken out any kind of loan – even a student loan – you have a credit score.


The score takes into account a number of factors including credit lines, loans, utility bills, and medical expenses. In fact, pretty much anything you’re billed for that isn’t paid for up front immediately can affect you credit score.


Your Credit Score Affects More Than Your Finances


Just like most financial records can impact upon your score, your credit rating also affects a number of things in your life.


Taking out a loan for a home or car will depend largely on your credit score. It will also determine your interest rate – the higher your credit score, the lower the interest rate.


Beyond that, jobs, utility companies and landlords can look for a credit report as a form of background check.


Even cell phone companies will consider your credit score if you want to take out a contract with them!


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Your Credit Score Is Defined By A Number Of Factors


The five things that determine your credit score are:

1. Payment history

2. Amounts owed

3. Length of credit history

4. New credit

5. Types of credit


The most important things are that you pay your bills on time and your debt to cash ratio. Opening a number of credit cards in a short time period or using up most of your credit will severely impact your score.


You Get A Free Credit Report Once A Year.


You get a free credit report a year from each of the three big credit bureaus: Experian, Equifax, and Transunion.


You can go to AnnualCreditReport.com to get all three free reports at once, or stagger them throughout the year.


Checking your credit reports are good to review your finances and check for any unusual behavior. Millennials are most at risk for identity theft.


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Your credit score won’t affect every single aspect of your everyday life, but it will have an impact if you need to make a large purchase, sign a lease for new house, or take out a loan.


Using credit responsibly by making payments on time and paying off your balances each month will generally ensure you have a great score.

 

 

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