• The Formerly

What is Your Credit Score?

Updated: Jan 21, 2019

What is this arbitrary number? What is it out of? Why not 1-100? Is 627 good or should I call my dad crying? Should I have been building whatever this number is? How do I do that…? I thought credit could be kinda bad? The broker is asking me for my credit score am I gonna be homeless? It’s like Russian Roulette over here I have no idea what’s going to come up. Is it possible to get a 0? Should I be embarrassed? I thought I wasn’t supposed to check my credit or it would go down or something? Why do people on TV keep telling me I can check my credit score for free? Am I supposed to? Wait what is out of ?

Ever ask yourself any of these questions? Same… SAME.

First and foremost, a credit score is out of 300-850.

The higher, the better. In emoji speak:

Why they didn’t make it easier for us and start with 1? No idea.

What is a credit score?

A credit score is a number that is derived from multiple factors of your credit history to determine your “credit worthiness”

Oooooo is that a threat?

The most commonly used credit score is a FICO score. We can get into the different kinds of credit scores later but let’s start with FICO since it’s the most commonly used and you’ll get the gist.

What is a FICO score?

So a FICO sore whoops score (Freudian slip) is a TYPE of credit score. It stands for “Fair Isaac Corporation” (catchy!), the company that created a proprietary formula to derive a number that determines your credit behavior deemed as the FICO score.

Here’s what determines a FICO score:

1. Payment history: This is basically if you are paying your credit accounts on time (ie: credit card, student loans, car payment). It takes into consideration how many missed payments, for how long, and how frequently those missed payments occur.

2. Credit Utilization (How much you owe): Basically this means don’t carry a huge credit card balance

For example, if Sally has a credit card with a $10,000 limit and she’s maxing that credit card out or carrying a very high balance close to that $10,000 this wouldn’t be great for her score

But let’s say Sally #2 has a credit card with a $100,000 limit (those exist?!) and she’s carrying a balance of $10,000 that’s not even close to her limit.

It’s not necessarily about how much you owe but how much you owe in relation to the amount of credit available.

If I lost you once you saw numbers… DON’T CARRY A HIGH CREDIT CARD BALANCE.

3. Length of credit history: Usually the longer the better so starting at a slight disadvantage but it’s only up from here!

4. Types of credit: It’s best to have a mix of different kinds of credit but we can worry about that later- don’t take on too much just to have different kinds

5. New credit: If you open a bunch of new credit accounts at the same time, it could be red flag and negatively affect your score

But not all of the above are created equally! The most important are the first two so if you are new to this start there.

For the visual learners, see handy chart below : )

What is a credit score used for?

A credit score uses your past credit behavior to determine the likelihood of your future credit behavior.

Isshh hope that logic doesn’t apply to past relationships

The score gives “lenders” (ppl giving you money) an indication of your “credit trustworthiness” so basically if you are likely to pay your bills/loans on time and then they get to decide if they want to lend to you, your credit limit, what interest rate to charge you, etc

So when you are applying for a house, apartment, credit card, loan, car they will unfortunately use this number and not your instagram ratio J I’m just giving you a hard time I know you’re not that shallow.

How can you check your credit?

You can check your credit score for free once a year at annualcreditreport.com it not only tells you your credit score but information such as employment history, credit activity, credit accounts, and inquiries, all the goods!

It will provide you with credit scores from the 3 major credit bureaus: TransUnion, Equifax, and Experian who have their own credit scoring system (like I said we can break that down later) but those guys also give you your FICO score.

p.s. It’s harder to check your actual FICO score for free but check with your bank or credit card company who often times offer that service

p.p.s. Checking your own credit score is referred to as “soft inquiry” and although might be noted, won’t affect your score negatively so depth breaths I know you were worried!

Let’s Review:

1. Understand what a credit score is

2. Check your credit history using annualcreditreport.com or one of the 3 major bureaus

3. Use the emoji chart to figure out how you’re doing

4. You are doing great!!! Or maybe not… but that’s okay! You can always turn your grimace emoji to the creepy all teeth smile