Credit Scores and Building Credit Worthiness
Learn about credit scores, including how they are determined and why they are important for your financial health. Discover tips on how to build and maintain a good credit score to secure better financial opportunities in the future.
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Presentation Transcript
Money Matters Topic 7 Credit and Credit Scores
What is credit? Credit is your ability and worthiness to borrow money and pay it back in a reasonable timeframe. Institutions that lend money need some form of assurance that you can and will pay back whatever loan they provide.
Forms of Credit Credit Cards-apply and you usually can get one. More difficult credit sources include Personal Loans Mortgage Auto Loans
How is your credit- worthiness determined? By your credit score. Your credit score factors things such as your income, your debt, your income to debt ratio, your history of making payments on time, credit cards (how many, spending limits, and balances), mortgage foreclosures, bankruptcies, auto repossessions, assets such as checking, savings, and retirement fund balances.
Credit Scores Usually a number between 300 and 850. The higher the number, the better your credit. Generally speaking, numbers at or above 690 are good and credit scores above 720 are considered excellent (source: Nerdwallet.com, 2022).
Credit Score Sources The 3 American companies that provide credit scores include Experian, Equifax, and Transunion. Most credit score applications report a score for all 3 companies. The all use similar, but slightly different formulas.
Credit Score Determination Some people pay to get a credit score report when they feel like doing so. However, this is not a requirement unless you are applying for some form of credit. That could include a credit card or a loan application.
Building Credit Scores Establish good working credit. This could include a credit card with a reasonable maximum credit that you pay off monthly. If you pay it off monthly, there is no interest charged. Other helpful credit builders include never missing payments, building assets, keeping debt minimum, and making good financial decisions.
