What is Credit?
What does it mean to have credit?
It means to have history of borrowing money (that you pay back later) and paying bills.
Credit is identified using a FICO score (the 3 digit number)
What is the highest and lowest your credit score can be?
It shows how trustworthy you are with money.
How can you build good credit?
Use credit responsibly, such as:
- making payments on time and paying OVER the minimum payment
- keeping balances low
- not spending credit card on unnecessary things unless you can afford to do so (your salary is 60k, you could afford to purchase something for $100 with credit card, but purchasing $1,000 shoes wouldn't be smart)
True or False: You can only get credit from banks.
False, you can get credit from many places, not just banks.
What is a credit report?
A document that shows your borrowing history.
What score would be considered a good credit score?
670+
670 - 739 is "good"
740-799 is "very good"
800+ is "excellent"
What happens if you miss a credit card payment?
you can get charged a late fee and your credit score could decrease/be lowered
Also* your credit card APR (interest rate)could increase
True or False: You can pay off your credit card anytime.
True, you can pay off your credit card balance whenever you want.
However for loans, there may be penalties or fees for paying it off early
How can you get a credit report?
You can get a credit report for free once a year from each of the three main credit bureaus:
Equifax, Experian and TransUnion
Who checks your credit score?
Banks and lenders check your score when you apply for a loan or credit.
You should not spend over ____ % of your credit card limit.
30%
Your credit score can decrease when you spend over that amount.
Example: You have $1,000 limit, avoid spending anything over $300
True or False: Checking your credit report/score will impact it negatively.
False
Checking your own credit report is a soft inquiry. It will not impact it. Checking your report/score regularly can help you make sure there are no mistakes on it.
What is interest?
Interest is the fee that you need to pay for borrowing money.
Example: If you borrow 2,000 from the bank with a 15% interest rate, you would have to pay 2,300. The extra 300 would be the interest charged for the bank letting you borrow the money.
What is a hard inquiry in your credit report?
A hard inquiry is when a lender request your credit report if you're applying for a loan or credit card. Examples: home loan, car loan, doing monthly payment for a cell phone
The opposite is soft inquiries. Examples: you checking your credit report on a website, credit card pre-qualification
What is debt-to-income-ratio and why is it important?
Debt-to-income-ratio is the percentage of your monthly income that will go towards paying debts.
It's important because lenders use it to determine the amount of money you could be loaned.
Should not exceed 35%
Ex: You make 50,000/year and pay $450/month towards debt, your ration is 11%
True or false: Closing old credit accounts help improve your credit score.
False
Closing old credit card accounts can shorten the length of time of your credit history and increase the percentage of the total credit that you are using. These both can lower your score.