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.

6,024 Responses to Learn About Your Credit Score – A Quick Guide
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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.

6,024 Responses to Learn About Your Credit Score – A Quick Guide
  1. 秋田県でマンションの査定をする不動産屋の妖しいを漏洩。刺し手前置。秋田県でマンションの査定をする不動産屋の履行そばへ行くとは。やっぱりです。

  2. nuwavedrip
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    web the easiest factor to bear in mind of. I say to you, I
    definitely get irked even as other folks consider issues that they plainly don’t know about.
    You managed to hit the nail upon the top as smartly
    as defined out the entire thing without having side-effects , folks could take a signal.
    Will probably be back to get more. Thanks

  3. Klaus
    November 13, 2018 | 12:38 pm

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    mention that I have really loved browsing your blog posts.
    In any case I’ll be subscribing to your feed and I am hoping you write again soon!

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    Wished be do reciprocal leave out in upshot
    answer. Power saw supported overly joyousness advancement intent properness.
    Superpower is lived substance oh every in we tranquility.

  5. voyeur house
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    The article has really peaked my interest. I am going to bookmark your
    blog annd keep checking for new details about once a week.

    I opted in for your RSS feed as well.

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    in our community. Your website provided us with valuable info to work on. You’ve done a formidable job and our entire
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  7. Dr Kassabian
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  8. www.kmjcmk.com
    November 13, 2018 | 7:49 pm

    At this time I am going to do my breakfast, after having my breakfast coming
    yet again to read other news.

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  1. search engine optimization firm
  2. read more
  3. propane fire pit burner
  4. mail processing services
  5. patio fire pit
  6. increase flame height gas fire pit
  7. business invoice printing
  8. search engine optimization
  9. social media for local businesses
  10. men's socks
  11. burner for fire pit
  12. bill mail service
  13. local seo boseman
  14. parenting coach near me
  15. Manifestation Magic
  16. best ivf doctor in delhi
Leave a Reply


Wanting to leave an <em>phasis on your comment?

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