Understanding your credit score

Credit card companies, loan providers (for cars, houses, or higher-education) as well as other lenders examine your credit score to determine the risk of you not repaying your debt under the agreed upon terms. As such, a good credit score makes you more likely to be approved for a loan and with better terms. A bad credit score means that you will have to pay higher interest, or that you may not even be approved for a loan. The difference could be as high as thousands of dollars per year in interest or not being able to rent the apartment you wanted!

Here are the factors which impact your credit:

·  Payment history – Make your payments on time and in the full amount for any outstanding loans and credit cards. This is the most influential factor.

·  Total debt – The less credit card debt the better!

·  Credit utilization rate – This is the rate at which you use your credit. If your credit limit is $5000 and you have $4000 outstanding then your rate is 80%. A low rate is better and it’s best to have a rate below 50%. If your rate is high, it may be appropriate to request a higher credit limit (as long as you won’t tap into that increased limit);

·  Vintage; Type; Number of Accounts – a longer and more diverse credit history  with multiple types of loans is better than a brand new account with not much history.

In addition to the above, your credit score is also impacted by your public records and the number of new credit accounts you’ve recently opened.

Martha Rodriguez