Learn About Your Credit Score – A Quick Guide

An informative episode of the Personal Finance Hour this week has me thinking about credit scores.  There will be my recap of the most recent episode posted on the PFH’s website later on today/tomorrow but I wanted to share some information with the readers of this site that I thought would have value.

Credit score myths:

  • Having too many accounts can negatively affect your credit score.  This is not the case because of how your credit score is calculated (see below).
  • Checking your own credit score will lower your score.  This is not true.  However, if you have a friend at the local bank check your score, it is possible this will be seen by the credit bureaus as you “shopping for credit”.  This can be a red flag to creditors and drop your credit score.

How a credit score is calculated:

The specific calculation methods of your credit score is hidden in a multi-variate model by FICO.  However, we do know some of the major components.

  • 35% of your credit score is based on your payment history.  If you have not missed any payments, you can expect this section to be in your favor.
  • The next 30% is based on your credit utilization.  To figure out your credit utilization, take the amount of revolving debt you have (credit cards) and divide it by the credit limits of your cards.  That percentage is your credit utilization.  The smaller the number, the better.

How you can hurt your credit score:

  • Missing a payment! Missing a payment is one of the worst things you can do to demolish your credit score.  Liz Weston stated that your score can drop as much as 100 points based on one missed payment.  If this isn’t enough of a reason to automate your bill payments process, I don’t know what is.
  • Having a low credit utilization percentage.  If your cards are near maxed (even if you pay them off in full) makes the credit bureaus worry.  They will ding your credit score as they think you are starting to over extend yourself and that this behavior may become a pattern.  In reality, you may have just charged a couple of airline tickets for a trip 6 months from now that you have the money saved for.

How you can help your credit score:

  • Paying your bills on time.  This shows responsibility and that creditors can rely on you to pay them on time.
  • Pay off your installment loans.  Paying off installment loans may not help your score much initially, but the more that are paid off, the larger of an affect they have on your credit score.  Also, it will feel great to not have to worry about your car payments, mortgage, or student loans anymore.
  • Get a secured Credit Card.  Using a secured credit card will give you the opportunity to show your reliability to creditors.  Eventually this card can evolve into a normal unsecured credit card.  As Weston put it, if you aren’t using credit, the credit bureaus can’t track your usage of credit and can’t affect positively affect your score when you are acting responsibly.

A saddening tale that Liz discussed on the show was a couple that had driven themselves into such financial damage, that they emptied all of their home equity and retirment accounts in an attempt to avoid bankruptcy.  Unfortunately, when all was said and done, this couple had to declare bankruptcy anyway and lost all of their equity and their retirment accounts in the process.  These things can be protected in bankruptcy court.  It is not advisable to declare bankruptcy, but if you are in that deep of a whole, it may be best to consult financial advisors to see if nuking your credit report is the best way to try and repair the damage you have already done.

This personal finance hour episode was very informative as it discussed something that affects every one of us.  Not everyone deals with debt, not anyone needs tips on retirement accounts, or high yield savings accounts, but everyone does have a credit score, and that score can impact your life drastically be it high or low.  Learning more about your credit score is the first step you can take to ensuring your credit is helping you and not hurting you.  For more information, I suggest listening to the Personal Finance Hour episode for this week by clicking here.

13,869 Responses to Learn About Your Credit Score – A Quick Guide
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Leave a Reply


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Trackback URL http://mynextbuck.com/learn-about-your-credit-score-a-quick-guide/trackback/

Learn About Your Credit Score – A Quick Guide

An informative episode of the Personal Finance Hour this week has me thinking about credit scores.  There will be my recap of the most recent episode posted on the PFH’s website later on today/tomorrow but I wanted to share some information with the readers of this site that I thought would have value.

Credit score myths:

  • Having too many accounts can negatively affect your credit score.  This is not the case because of how your credit score is calculated (see below).
  • Checking your own credit score will lower your score.  This is not true.  However, if you have a friend at the local bank check your score, it is possible this will be seen by the credit bureaus as you “shopping for credit”.  This can be a red flag to creditors and drop your credit score.

How a credit score is calculated:

The specific calculation methods of your credit score is hidden in a multi-variate model by FICO.  However, we do know some of the major components.

  • 35% of your credit score is based on your payment history.  If you have not missed any payments, you can expect this section to be in your favor.
  • The next 30% is based on your credit utilization.  To figure out your credit utilization, take the amount of revolving debt you have (credit cards) and divide it by the credit limits of your cards.  That percentage is your credit utilization.  The smaller the number, the better.

How you can hurt your credit score:

  • Missing a payment! Missing a payment is one of the worst things you can do to demolish your credit score.  Liz Weston stated that your score can drop as much as 100 points based on one missed payment.  If this isn’t enough of a reason to automate your bill payments process, I don’t know what is.
  • Having a low credit utilization percentage.  If your cards are near maxed (even if you pay them off in full) makes the credit bureaus worry.  They will ding your credit score as they think you are starting to over extend yourself and that this behavior may become a pattern.  In reality, you may have just charged a couple of airline tickets for a trip 6 months from now that you have the money saved for.

How you can help your credit score:

  • Paying your bills on time.  This shows responsibility and that creditors can rely on you to pay them on time.
  • Pay off your installment loans.  Paying off installment loans may not help your score much initially, but the more that are paid off, the larger of an affect they have on your credit score.  Also, it will feel great to not have to worry about your car payments, mortgage, or student loans anymore.
  • Get a secured Credit Card.  Using a secured credit card will give you the opportunity to show your reliability to creditors.  Eventually this card can evolve into a normal unsecured credit card.  As Weston put it, if you aren’t using credit, the credit bureaus can’t track your usage of credit and can’t affect positively affect your score when you are acting responsibly.

A saddening tale that Liz discussed on the show was a couple that had driven themselves into such financial damage, that they emptied all of their home equity and retirment accounts in an attempt to avoid bankruptcy.  Unfortunately, when all was said and done, this couple had to declare bankruptcy anyway and lost all of their equity and their retirment accounts in the process.  These things can be protected in bankruptcy court.  It is not advisable to declare bankruptcy, but if you are in that deep of a whole, it may be best to consult financial advisors to see if nuking your credit report is the best way to try and repair the damage you have already done.

This personal finance hour episode was very informative as it discussed something that affects every one of us.  Not everyone deals with debt, not anyone needs tips on retirement accounts, or high yield savings accounts, but everyone does have a credit score, and that score can impact your life drastically be it high or low.  Learning more about your credit score is the first step you can take to ensuring your credit is helping you and not hurting you.  For more information, I suggest listening to the Personal Finance Hour episode for this week by clicking here.

13,869 Responses to Learn About Your Credit Score – A Quick Guide
  1. Rodrigo Branco
    April 21, 2019 | 3:11 pm

    These are really fantastic ideas in about blogging.
    You have touched some pleasant things here. Any way keep up wrinting.

  2. Craig
    April 21, 2019 | 3:13 pm

    Hi colleagues, its fantastic piece of writing about cultureand entirely explained, keep it up all the
    time.

  3. paket peninggi badan tiens
    April 21, 2019 | 3:32 pm

    Awesome post. I’m a regular visitor of your website and appreciate you taking the time to maintain the excellent site. I will be a frequent visitor for a long time.

  4. tinyurl.com
    April 21, 2019 | 3:54 pm

    Great goods from you, man. I have understand your stuff previous to and you’re just extremely great.
    I actually like what you’ve acquired here, certainly like what you’re
    saying and the way in which you say it. You make it enjoyable
    and you still take care of to keep it sensible. I cant wait to read much more from you.
    This is actually a great website.

  5. Emile
    April 21, 2019 | 3:56 pm

    It’s fantastic that you are getting thoughts from this post as well as from our dialogue made here.

  6. Jeffry
    April 21, 2019 | 3:59 pm

    Hi! Someone in my Facebook group shared this website with us so I came to look it
    over. I’m definitely enjoying the information. I’m book-marking and will be tweeting
    this to my followers! Wonderful blog and wonderful design.

  7. Rodrigo Branco
    April 21, 2019 | 4:05 pm

    I am regular reader, how are you everybody? This
    article posted at this web page is actually fastidious.

  8. Rodney
    April 21, 2019 | 4:13 pm

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    around your weblog posts. In any case I will be subscribing to your feed and I am
    hoping you write again very soon!

  9. Boris
    April 21, 2019 | 4:34 pm

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    site conations really good funny stuff too.

  10. Rodrigo Branco
    April 21, 2019 | 4:35 pm

    My brother suggested I might like this web site.
    He was entirely right. This post actually made my day.

    You can not imagine just how much time I had spent for this information! Thanks!

  11. Nonton Film
    April 21, 2019 | 4:37 pm

    Hey there. I discovered your site by the use of Google while looking for a related subject, your website came up. It appears to be good. I’ve bookmarked it in my google bookmarks to visit then.

  12. Rodrigo Branco
    April 21, 2019 | 4:45 pm

    Hello would you mind stating which blog platform you’re using?
    I’m looking to start my own blog soon but I’m having a tough time choosing between BlogEngine/Wordpress/B2evolution and
    Drupal. The reason I ask is because your design seems different then most blogs and I’m looking for something
    unique. P.S My apologies for being off-topic but I
    had to ask!

  13. tinyurl.com
    April 21, 2019 | 4:54 pm

    I absolutely love your blog and find a lot of your post’s to be just what I’m looking for.
    Would you offer guest writers to write content in your case?
    I wouldn’t mind publishing a post or elaborating on a lot of the subjects you write in relation to here.

    Again, awesome web site!

  14. Lagu pop
    April 21, 2019 | 5:07 pm

    Awesome post. I’m a regular visitor of your site and appreciate you taking the time to maintain the excellent site. I’ll be a regular visitor for a long time.

  15. Rodrigo Branco
    April 21, 2019 | 5:16 pm

    Heya this is somewhat of off topic but I was wondering if blogs
    use WYSIWYG editors or if you have to manually code with
    HTML. I’m starting a blog soon but have no coding skills so I
    wanted to get advice from someone with experience. Any help would be enormously appreciated!

  16. tinyurl.com
    April 21, 2019 | 5:32 pm

    Nice blog here! Also your website loads up
    fast! What web host are you using? Can I get your affiliate link to your host?
    I wish my web site loaded up as quickly as yours lol

  17. tinyurl.com
    April 21, 2019 | 5:44 pm

    Excellent site you have here but I was wondering if you knew of any discussion boards that cover the same topics
    talked about here? I’d really like to be a part of online community where I can get
    opinions from other knowledgeable individuals that share the same interest.
    If you have any recommendations, please let me
    know. Thank you!

  18. Carina
    April 21, 2019 | 5:54 pm

    Definitely consider that which you stated. Your favourite justification seemed to be on the web the easiest factor to take note of.

    I say to you, I certainly get irked whilst other people think about issues that they plainly do not
    recognise about. You managed to hit the nail upon the highest
    and also outlined out the whole thing without having side effect ,
    other folks can take a signal. Will likely be again to
    get more. Thank you

  19. Arnoldo
    April 21, 2019 | 6:02 pm

    I am regular visitor, how are you everybody?
    This article posted at this web page is really pleasant.

Leave a Reply


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