Breaking it down Barney style means to strip a lot of the noise and provide basic information about subjects. This is a starting point and as time goes along, we will build from there.
This week we are going to talk about credit scores. What are they and what does it mean to us? To start, let’s explain what credit is.
Credit usually comes with a finance charge, known as interest, that is paid in addition to the amount we borrow. The finance charge is partially determined based on our credit score.
A credit score is a number assigned to us that indicates to lenders our capacity to repay a loan. In other words, have we been responsible in the past? Do we have a record of late payments, missing payments, claiming bankruptcy…etc?
Our financial habits impact the cost in which we are able to borrow. If we have been on the ball we may receive better financing terms than another person because of our good financial habits.
Credit scores range from 300 to 850. The higher, the better. Typically, 650 and lower is considered a poor credit score. Credit scores that are between 650-750 are considered fair, and those that are higher than 750 are seen as excellent.
One way to create a good credit score is to pay our bills on time, 35% of our credit score is based upon our payment history.
Another way to improve our credit score is to review our credit report and dispute any errors that are reflected on the report.