True or False: Once you're out of school, no one is keeping track of your scores. False! While you may no longer need to worry about the grade on your math test or history quiz, you do need to be concerned about real life math and your personal history. That's because based on how you handle your finances, you earn a credit score. Lenders use credit scores to assess risk, or in other words, whether or not you will pay back a loan or make timely payments.
Generally, the higher your score, the more likely you are to get a loan and to pay a lower interest rate on it. Ever notice the fine print in the ads for deals on car financing? If so, you've seen phrases such as "not all buyers will qualify" or "for well-qualified buyers." That means that the special offers are reserved for those with the highest credit scores. Some insurance companies also use credit scores to determine whether they should sell you insurance and at what price.
Lenders and others use several different scoring systems, but many use the FICO system, a credit risk model created by the Fair Isaac Corporation. FICO scores can range from 300 to 850. The model calculates the score from information compiled in the credit reports of the three major credit reporting agencies: Equifax, Transunion and Experian. These agencies keep a record of your credit history - your credit cards and loans and the promptness of your payments. Late payments hurt your score. Because credit cards held the longest contribute the most to a credit score, your score will be lower than someone older who has had a card longer. Another factor is credit available; that's the difference between the credit limit on a card and the amount owed. People who max out their cards have a lower credit score than those who don't.
The way to get a high credit score is to respect the credit you've been granted. For more information, contact the credit union.
