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Credit Score 101

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On Thursday, April 11, Dr. Debbie Fort, Director of Project Stay, presented “Understanding and Improving Your Credit Score,” sharing her financial wisdom. Over baked potatoes, we learned about credit scores and their role in becoming financially secure.


Dr. Fort defined credit as the ability to borrow money and make purchases, or money you are given that you promise to repay. Credit is almost always used in major purchases like a car or home. Debt is accrued from this borrowed money.


If you’ve been purchasing with credit for at least six months, you have a credit score. A credit score is a formula to determine how creditworthy you are. It shows the amount of debt you owe, the length of your credit history, the components of your credit mix, and new credit.


There are four grades of credit scores: poor (300-640), fair (640-680), good (680-720), and excellent (720-850).


A poor credit score significantly affects your ability to borrow credit. With a poor credit score, you will have difficulty getting an auto loan or a credit card with low interest and pay more in insurance and utility deposits. With a fair credit score, you can apply for a mortgage or auto loan and get a credit card with more favorable interest rates. With a good credit score, applying for credit is even easier, and the interest rates even better. An excellent credit score opens you to the best credit card offers and interest rates on loans. Even with an excellent credit score, you still build and maintain your credit.


Five factors affect your credit score. 35 percent of your credit score is payment history composed of on-time, late, or delinquent payments showing how likely you are to pay back debt. 30 percent is credit utilization, the percentage of available credit that you’re using on credit lines, calculated by dividing balance by credit limit. 15 percent is credit age, the average length your credit accounts have been open – the higher the credit age, the better the credit score. 10 percent is account mix, the variety of credit accounts you have: credit cards, retail accounts, loans, and mortgages. 10 percent is credit inquiries, a financial institution’s request to review your credit file to make a lending decision.


If you watch your credit score on free reporting services, such as Credit Sesame or Credit Karma, you might notice a loss or gain of points day to day. Points can be lost to hard inquiries; loan default or missed payments, which remain on your credit history for seven years; late payments on credit cards or bills whose lenders report to bureaus; collections, which aims to recover your debt if your bills are not paid; and bankruptcy. Points can be gained by disputing errors, spotted on your credit report and filed as a dispute with the bureaus; paying off debt, especially making payments on time; rent, paid on time, if your landlord reports to bureaus; good debt, defined as debt that has been paid on time and in full, which reflects your commitment to paying your creditors; and increasing credit limit, which helps to improve your credit utilization ratio. Dr. Fort recommended, based on personal experience, not closing any credit accounts, even if they are paid off. This builds credit history and age.

To raise your credit score, Dr. Fort recommended paying your bills on time, making sure your balances on credit cards never use more than 30 percent of your credit line, selectively applying for credit, living within your means, mixing up your accounts between credit cards, auto and home loans, and other credit, and planning for the future.


Three bureaus create credit scores and reports: Experian, TransUnion, and Equifax. Scores and reports generated by each bureau may differ.


A credit report is a summary of all your credit history over time. The longer you’ve been using credit, the longer your report will be. It shows your name, address, and social security number, the types of credit you’ve used, dates of new credit lines, balanced and available credit, accounts in collections, and information related to bankruptcy, tax liens, and court judgements. When you apply for credit, the creditor will create a hard credit inquiry with this report to evaluate the risk in giving you credit.


Dr. Fort showed us a sample credit report here.


You’re entitled to one free copy of your credit report ever 12 months from each of the three credit reporting companies. You can order them online for free here. You can order a report from all three companies at once and compare them, which may be useful if you’re planning to make a big credit purchase, or spread out your orders every four months to watch for new information or inaccuracies.


Dr. Fort recommended that everyone download Credit Sesame, Credit Karma, and Experian to regularly watch your credit score. She also instructed everyone to request a credit report and review it for inaccuracies. Knowledge about your credit score is the first step in improving it.


Dr. Fort is an excellent resource for students looking to become more financially secure. Her office is Spiva Room 410. You can reach her at 417-625-9828 or [email protected].

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