Credit Scores – Finance for Teens! #Finance

Ah report cards, I remember those. A short sweet record of your very long complicated history of working hard through an entire year of school. I thought I was done with them once I graduated but turns out I’m not. Now instead of academics I am working hard to keeping a good

Credit score on my Credit report. Adulting, am I right? In this CashNews.co, we’re going to learn all about Credit reports and then more specifically Credit scores. We’re going to dive into what affects them, how

they’re calculated, and the advantages to having a good one. All right, let’s get into it! A Credit report is a report on your complete financial history. It’s kind of like a report card but for how responsible you are with your

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finances. A Credit report compiles information from all of your Credit lenders, so your Credit cards and Loans,

information from Debt collection agencies which are companies that collect unpaid Debts for lenders, and information from the government. In the United States these are the three main Credit bureaus that can collect your information and financial

data to create your Credit report. Now these Credit reports might all be a little different because they’re all coming from different companies and they might choose to report on things a little bit differently, but all in all, when it comes to determining

how likely you are to pay off your Debt the most important thing someone will look for is your Credit score. FICO and Vantage score are the two main companies that collect all the information from your Credit report in order to calculate your

Credit score which summarizes how risky it would be for someone to lend money to you. That’s why some people will call their Credit score their FICO score or their Vantage score and like I said before, these are different companies, they have slightly

different ways of calculating your score so they might give you two slightly different Credit scores and that’s totally okay. Your Credit score itself is just a number, it’s on a range between 300 and 850 where the bigger the number the better your

score. How your Credit score is actually calculated will depend on the bureau and the Credit scoring model, but to give you some more insight into this let’s check out how FICO calculates your Credit score. With a FICO score about 35% of the

score is determined by your payment history. Avoiding late payments is the key to this one. If lenders see a long history of on-time payments then they are much more confident that this pattern will continue. About another 30% of the score is determined by the amounts that you’ve owed.

Lenders want to see signs of responsible Credit ownership so you should be able to show them that you’re able to take on a reasonable amount of Credit without going overboard. About 15% of your FICO score is determined by the length of your

Credit history. Lenders like to see that you have experience handling Credit so the longer you’ve been borrowing the better. About 10% of the score is determined by the variety of Credit you’ve taken on. Lenders want to see that

you’re able to handle multiple different types of Credit so for example, having a Credit card and a car Loan is diverse enough. Remember we don’t want to go overboard here. And finally, about 10% of your score is determined by how often

you apply for Credit. If you apply for Credit frequently like say apply for multiple different Credit cards really quickly then lenders might see that as you being put under financial pressure so only apply for Credit if you

absolutely need to. As you can see almost every financial decision you make can impact your Credit score, but there’s also one more thing that can change your Credit score that many people don’t even realize until it happens to them. See whenever a

lender wants to see your Credit report they have to go to one of these Credit bureaus and inquire or request that they generate it. Too many requests in too short a period of time can actually lower your Credit score. This is because it can seem

like you’re trying to open multiple lines of Credit which is a risk and makes it look like you’re under some kind of financial stress. But why is it so important to have a good Credit score anyway? Well because a Credit score is a

measure for proven responsibility with different kinds of Credit, lenders will definitely be looking at it. The better your Credit score the higher your chances are of getting approved for that Credit card or a Loan. Also the

higher your Credit score the better the interest rate will be on that Credit card or Loan because those lenders know that they can trust you. It’s not even lenders that are using your Credit score. If you ever want to rent a

home or apartment then your landlord will usually take a look at your Credit score as part of the application process to determine your payment history and see if you could be trusted to make rent payments on time. Having a good Credit score can also get you a

better deal on car or homeowners Insurance and even cell phone companies might take a look at your Credit reports before giving you a phone contract. Heck, even some employers will take a look at your Credit score as part of their background

checks! Overall, it’s safe to say that building a good Credit score will save you money and make your life a little easier because so many aspects of your life are impacted by your Credit score. And of course none of this information is meant to scare you

into never getting a Credit card or never taking out a Loan ever. No, no. It’s just meant to inform you what Credit is, how it works, and how Credit reports work so that you can build up your Credit score.

That way in the future it will be easier for you to rent an apartment, buy a car, or take out a Loan if you need to. Okay so we’ve been talking a lot about Loans and Credit cards in this CashNews.co so you might be wondering, "how do I

get my hands on one of those?" or more importantly "how do I actually use them responsibly?" and those are some great questions for our very next lesson. See you then!