What is Credit? - Credit Score - Part 2
What is Credit? - Credit Score - Part 2
A credit score is a number to rate your past payment performance. Think of it like a report card which grades your classroom performance, a credit score is similar in that it grades your payment history and other factors. We’ll discuss those in more detail below. Lenders, such as banks and credit card companies, use credit scores to evaluate if they should lend to you and what interest rate to charge.
Having a good credit score can significantly impact your financial life. It can mean the difference between getting approved or rejected for a loan or credit card, and it can also influence the interest rate you're offered on these credit products.
Credit scores are determined by several factors, including:
Payment History: Whether you've paid past credit accounts on time is the most significant factor affecting your credit score.
Amounts Owed: This is how much credit one has used relative to total amount available.
Length of Credit History: How long you've had credit. This includes the age of your oldest credit account, the age of your newest credit account, and the average age of all your accounts.
New Credit: This includes recent inquiries on your credit report and new credit accounts you've opened.
Types of Credit Used: The mix of accounts you have, such as revolving and installment.
Understanding these components can help you take steps to maintain or improve your credit score, opening up more opportunities and financial flexibility. Well that’s all for now.
