Credit scores explained
What is a credit score? How does it impact your ability to secure a loan or rent an apartment? What are the best strategies for improving your credit score to save tens of thousands of dollars over a lifetime? Listen to get all your questions about credit scores explained.
LGBTQ community and credit scores explained
According to a recent Experian survey, 70% of the LGBTQ community named ‘credit score’ as a leading financial concern. Today, we’re discussing the factors that determine your credit score, including payment history, payment utilization and overall credit history. We explain how your credit score influences the interest rates you pay and share a significant amount of interest we paid annually—before we turned our financial lives around.
We offer insight around the free ways to acquire your credit score, why your score may be different depending upon the source, and the danger in applying for additional credit to decrease utilization.
Credit scores explained for you:A good credit score can save you hundreds, if not tens-of-thousands of dollars over your lifetime that you could put toward other more important things like buying a home or going on vacation. - Debt Free GuysClick To Tweet
Credit score questions
1. What’s the easiest way to find my credit score?
The easiest as at a financial institution where you already have a relationship. On Day 1 of Week 2’s reading, “Finding Your Credit Score,” we linked to a Nav article that listed 150 banks and website where you can learn your credit score for free. If your financial institution isn’t listed here and you can’t find your credit score at your financial institution, go to FreeCreditScore.com, which is owned by Experian.
2. Why is my credit score different depending on where and when I get it?
Each of the three credit rating agencies (Experian, Trans Union and Equifax) calculate credit score differently, calculate them at different times of the month and they’re not all getting the same credit information. There are also two different calculations for credit scores, the popular and more common FICO Score calculation and the Vantage Score calculation. So, each credit score will be different though not significantly so. For our purposes, you can work off one score or average the three.
3. How many points do hard inquiries take off my credit score?
Several factors will influence how many points each individual loses with hard credit inquiries. However, for most people, one additional credit inquiry will take less than five points off their FICO Scores. Inquiries can have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk. Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports. While inquiries often can play a part in assessing risk, they play a minor part. Much more important factors for your scores are how timely you pay your bills and your overall debt burden as indicated on your credit report.
4. Couldn’t I apply for more credit, thereby increasing my available credit, to lower my credit utilization?
Yes, you could, but this isn’t advisable. That’s because it increases the chance that you’ll over-leverage yourself and it will increase your available credit to income, which can adversely affect your credit score.
5. What’s the best, most efficient way to improve my credit score?
Pay your bills on time, which is the benefit of the gas station credit card tip, and reduce your debt burden, which is the benefit of honestly lowering your credit utilization.
Your credit scores explained
The basics of understanding your credit score
- Three-digit number between 300-850
- Judge whether worthy of risk
The factors that determine your credit score
- Payment history (especially last 24 months)
- Credit utilization (below 35% is best)
- Credit history
How your credit score impacts interest rates
- Higher score = lower interest rates
- Save thousands of $ over lifetime
The easiest way to find your credit score
- Credit union, bank or credit card company
- Free sites (e.g.: com)
Why your credit score is different depending on the source
- Three different companies
- Info collected at different times
- Two ways to calculate (FICO, Vantage)
How a hard inquiry impacts your credit score
- Single instance = 4- to 5-point drop
- Six or more indicates desperate situation
Applying for more credit to decrease credit utilization
- Not good idea due to risk of overleverage
- Potential long-term detrimental effect
Our top strategies for improving your credit score
- Pay bills on time, automate as much as possible
- Pay off loans and credit card balances
- Don’t close traditional cards with long history
- Download the Credit Card Interest Rate Reality Check
- Any questions? Join the Queer Money™ Facebook Group
- Ready to get rolling – take the 7-Day Debt Freedom Challenge and be ready for the Credit Card Pay Off Course coming 01/14/19 – more info soon
Credit scores explained and then some:
- Queer Money™ Facebook Group
- Experian’s LGBTQ Money Survey
- Debt Free Guys™ Credit Card Interest Reality Check
- ‘150+ Places You Can Get Your Credit Scores for Free’ on Nav
- Free Credit Score
- VantageScore Solutions
- 7-Day Debt Freedom Challenge
- Queer Money™ Newsletter
- Subscribe on iTunes