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Have you ever made a decision (or not made a decision) based on how it would impact your credit score? Whether it be applying for a credit card, canceling a credit card, paying off debt early – we are concerned about how it will impact our credit score. And for good reason too; your credit score could potentially impact your future ability to get loans, and potentially some types of jobs. But are we giving our credit score too much “credit”? Or not concerned enough with our credit score? Before we get into that, let’s start with the truth about your credit score and what it actually is.
What You Need to Know About Credit Scores:
FICO, Equifax, Transunion – those are the 3 credit reporting agencies. A history of your past jobs and addresses, every payment for bills, loans, credit cards, as well as significant events like bankruptcies and arrests are recorded in these 3 places. When you think about it, it’s kinda scary – a permanent record of your financial past recorded in 3 places. But it is what it is and unless you want to live completely off the grid, a credit score that follows you is a part of life. There are different reasons why you should and shouldn’t care about your FICO score along the way.
How are FICO Score calculated anyway?
There are things that can help your credit score and things that can hurt your credit score. Let’s look at the factors used in the calculation:
Credit to Debt ratio – If you have large access to borrowing, but you are utilizing a small percentage of it, then your credit to debt ratio is small, and that helps your score.
Debt to Income ratio – Having low debt and high income will help your score, while high debt and low income… Read More
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