I’m sorry if this basic knowledge, but I honestly don’t understand any of it.
In: Economics
Do you get along with your parents? Do they have good credit? Ask them to add you as an authorized user on a credit card with the highest limit. A card will be mailed to you. Don’t use it.
Your credit score is extremely important. Build your credit and keep building. If you don’t have good credit, life is going to be difficult.
In the past, getting a loan was tedious as lenders had to review your credit report, which is a list of your various loans, credit cards, etc. and then make a determination whether to loan to you or not. It was a manual process, and there was a lot of discretion involved in terms of what pieces of info to consider.
A credit score takes those same inputs and spits out a score that can then quickly determine whether or not to loan to you, and at what rate. In many cases, it allows for instant approval. A car dealer, for instance, can run your credit and see that you have a 780 score and offer you the best interest rates. Or they see you’re a 500 and let you know you won’t be able to borrow due to a poor score.
Criteria it looks at are age of credit history, number of accounts, different types of accounts, utilization rate (balance relative to credit line on credit cards), late payments (more than 30 days late), negative marks (bankruptcies, sent to collections, settled/written off accounts) how many times you’ve recently applied for credit.
Credit Scores are based on purchases like the type of phone you buy, your service and how timely you pay it (on time, early, or late). These factors contribute to a system where businesses like banks will offer a loan to you for purchases like a new car, a new house, or a new phone. Paying your bills on time usually result in a better score. Also purchasing and paying off your Credit Cards will improve your credit score.
You credit score is basically a way for creditors (people who might lend you money) to quickly see how trustworthy you are with their money.
When you take out a loan, that is an investment for the creditor, that they’ll make money off of by you paying them back.
The key is, they need you to pay them back, if you just took the loan and then went out of business and filed for bankruptcy, they would lose All that money. So they only want to make safe investments in trust worthy people.
And your credit score represents how trustworthy you are.
Your credit score gets kept track up by independent companies (one example is Euqifax). And they come up with your credit score based on your credit history. This takes into account things like how much debt you already have. How many lines of credit (credit cards) you have open. How much of each line you use. Do you reliably pay them back on time. Have you ever made late payments? Do you often make late payments?
All these things factor into your credit score. And the higher your credit score, the more trustworthy you are, and the safer investment you are for creditors, which helps you get loans both easier and cheaper.
Your credit score is a commercial product created by the 3 major credit bureaus. Basically the banks wanted a more reliable way to judge whether or not a person was reliable enough to borrow money, and these 3 companies figured out a way to monitize that.
Each of the bureaus’s scores you a bit differently, but basically they look at things like how often you’ve borrow money, how much money you make versus what debts you currently owe, whether or not you’ve been late on payments and how often, etc.
Basically they look at your financial history and assign it a score. Someone who has demonstrated that they are more of a reliable borrower, will have a higher score.
It’s important in ways that might surprise you. Obviously credit score is a major factor in whether or not you can get a loan, but it can also affect your ability to rent an apartment (some landlords run credit checks), and it can be used against you during the employment process.
A credit score is a number that financial institutions use to judge how likely you are to pay back any loans or credit extended to you. The higher the score, the more stable and trustworthy they view you.
The score is important because many large purchases in life usually require a loan. For example, a car loan or a home mortgage. The better your credit score, the better terms the bank will extend you on the loan.
Credit score is a number used to indicate how trustworthy you are with money and how likely you are to pay back loans. This is important because certain loans like mortgages and car loans require minimum credit scores, and having a higher credit score can often mean lower interest rates on loans since the lender is taking less risk when lending to a more trustworthy client. Landlords also often screen tenants by credit score. Having a low credit score can also make it harder to get security clearances with the reasoning behind it is that individuals with financial problems are more susceptible to bribery.
Nonsense, it’s made up, and because credit companies want it to be.
Basically your credit score is a “how much money can we make from this guy” rating.
You can pay every bill on time for decades and never borrow a penny, and your credit score will suck.
You can owe everybody money constantly for years on end, but pay on time, and your credit score will be pretty good.
You can earn millions and have a sucky credit score. You can be penniless and have a great one.
But if you’re bankrupt, or don’t pay things back, your credit score will suck.
It’s just a rating of “how much money are we likely to screw out of this guy” – the more profit they can make by lending to you, the better your credit score. If you don’t take credit, or miss payments, they will lower your score. But if you just keep taking out debt after debt after debt for your entire life, and pay them their interest every month, you’ll have a great score.
Also, there is no fixed definition, it’s literally up to each company to decide your credit score based on anything they like. For instance, with the two major credit rating agencies, I have one with a score of 999, and one with a score of 400 – and they both have the exact same information on me. The numbers mean nothing in themselves, it’s just like having a “9-star” rating with one and a “4-star” rating with another.
They can take account of almost anything they like in coming up with your rating – who you have lived with, whether you paid on time, what kind of things you took out loans for, how often you move house, etc.
And companies that lend you money can use one, or many of these agencies, and then they ignore your “credit score”, they apply their own criteria to the same data anyway. There’s no guarantee that a perfect credit score with one agency, or even all of them, means you can get credit at all. You can’t compare them, and they do not mean anything to most lenders, really.
It’s a nonsense. It’s a risk-rating for the lender. You get better ratings if you’ll likely pay them more money in interest over your lifetime. That’s it.
P.S. “Credit” means “debt”. It’s your debt rating. If you take out a credit card, it’s a debt card. Think of it like that. This is a rating of how much money they can make from your debt to them.
Let’s use the report cards you get in school as an analogy.
A credit score is basically just like an accumulation of the report cards you get at the end of each term. If you fail to pay loans or credit card bills on time, you get points deducted. If you do pay on time, you get extra points. Each report card contributes to a certain part of your overall score.
The better your score, the more banks will trust you and the more money you can borrow (at lower interest rates). The worse your score, the more difficult it’ll be to get loans and credit cards. If your score is too low, you may not be able to get a loan at all and your credit card may be terminated.
If your score is bad now, you can still pull it up over time by scoring well. Over time, your more recent report cards will help bring your overall score up. More recent report cards are also worth more, but like in all schools, the weightage assigned to different report cards differs.
The precise formula is not publicly known but here are some other additional considerations:
– length of credit history — if you’ve been paying your bills consistently for a long period of time, banks believe you are more likely to continue doing so
– new credit — if you have too many new accounts, banks may wonder if you are taking on too many loans
– used credit — if you are already maxing out your credit cards and taking a lot of loans, banks may wonder if you will be able to pay them along with everyone else
Note: banks are not the only creditors, but when I was five, I didn’t understand the term “creditor” so it think this is a necessary oversimplification
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