Score Sense
What is a credit score?
A numerical representation of a person's creditworthiness based on their credit history.
What does "credit utilization rate" measure?
What does "credit utilization rate" measure?
How does a credit score affect your ability to borrow?
A higher credit score makes it easier to borrow money and qualify for loans, while a lower score can make it more difficult.
Why is it important to start building credit at a young age?
Building credit early helps establish a long credit history, which is a key factor in determining your credit score.
What is one simple way to start building credit?
Opening a secured credit card or becoming an authorized user on someone else’s account is a simple way to start building credit.
What range of numbers generally indicates a "good" credit score?
A score between 670 and 739 is considered "good" by most credit scoring models.
What is considered a "good" credit utilization rate?
A credit utilization rate of 30% or less is generally considered good.
What happens to interest rates when your credit score is low?
Interest rates are higher when you have a low credit score, as lenders see you as a higher risk.
What is a "thin file" in credit terms?
A "thin file" refers to a credit report with little or no credit history, making it difficult for lenders to assess your creditworthiness.
How does paying your bills on time affect your credit score?
Paying bills on time positively impacts your credit score, as payment history is the largest factor in calculating your score.
How often should you check your credit score?
At least once a year, but more frequently if you are monitoring changes or preparing for a major financial decision.
Name two key pieces of information that appear on a credit report.
Payment history and total debt are two key pieces of information found on a credit report.
At what point in life is it generally a good idea to consider borrowing?
It’s generally a good idea to borrow when you have a stable income and can comfortably afford to repay the debt.
What impact does having a "thin file" have on your ability to borrow?
A thin file makes it harder to qualify for loans or credit cards because lenders have little information to assess your financial reliability.
How does keeping credit card balances low help improve your credit score?
Keeping balances low reduces your credit utilization rate, which helps improve your credit score by showing responsible credit use.
What is the most commonly used credit scoring model?
The FICO score is the most widely used credit scoring model.
How long does negative information, such as missed payments, typically stay on your credit report?
Negative information typically stays on your credit report for 7 years.
What is one major factor lenders look at when deciding how much you can borrow?
Lenders look at your debt-to-income ratio (DTI) to determine how much you can borrow.
What is one consequence of not having credit history when you apply for a loan?
Without credit history, you may be denied a loan or offered higher interest rates, as lenders view you as a higher-risk borrower.
How can diversifying your credit mix help build or improve your credit score?
Having a mix of credit types (e.g., credit cards, installment loans) can improve your credit score by showing lenders you can manage different types of debt responsibly.
Name one way a person can quickly improve their credit score.
Paying down credit card balances to reduce credit utilization is a fast way to improve a credit score.
How does credit utilization impact your credit score?
High credit utilization negatively impacts your score by suggesting a higher risk of default, while low utilization can boost your score by showing responsible credit management.
How can a high credit score affect the types of loans or credit you qualify for?
A high credit score allows you to qualify for better loan terms, such as lower interest rates, higher credit limits, and access to premium financial products.
How does the length of your credit history affect your credit score?
The longer your credit history, the better it is for your credit score, as it shows a track record of responsible credit use. This accounts for about 15% of your overall credit score.
What is one long-term strategy for maintaining a high credit score?
Maintaining a long credit history with consistent on-time payments, low credit utilization, and regularly monitoring your credit report for errors is a key long-term strategy for a high credit score.