Demystifying Your Credit Score

Your credit score is valuable whether you are a young adult beginning your financial journey or an experienced worker with a healthy bank account balance. A credit score can be your ticket to a new credit card, car loan, or mortgage. It can also be a ticket to a rejection if you don’t work diligently to maintain your credit score. And while a number might even seem a bit arbitrary at times, your credit score is nothing more than a representation of your financial trustworthiness.

A good credit score needs no explanation, but the difference between bad credit and no credit can affect how you get to a better place. Knowing the difference enables you to work on improving your score via the correct methods.

Three Key Credit Score Criteria

At the foundation of your credit score you will find three key requirements. 

• You must have an account for a minimum of six months.
• The account also needs to report activity to a credit bureau for six months.
• Your credit report cannot be connected to a deceased user.

For those with no credit, you must start somewhere. Typical points of entry for no credit include bank accounts, low-limit credit cards, and some smaller loans. While the temptation to take on too much debt is always there, working on the beginning stages of your credit score by opening a small account and paying the balance in a timely manner will help you when it comes time to obtain financing for those larger purchases in life.

Understand the Credit Score Math

Your credit score is calculated from a number of different factors. Each agency will have a slightly different policy, which is why you will often see three credit scores (one from each agency) on your credit report for a loan.

The main factors included in a credit score are: 

• Your overall payment history. Did you pay your account balances on time?
• Any unpaid debt. Money you still owe will count toward your score, and, roughly speaking, the more you owe, the more of a drag it will be on your credit score.
• The overall length of your credit history? Years and years of good payments will help the score.
• The types of credit. Revolving loans, otherwise known as credit cards, are one type. There are many others.
• Your applications for credit. You may see a small hit when your credit score is pulled in what is known as a “hard” pull.

The range for credit scores is about 300 to 850. The rule of thumb is that higher is better, with scores below about 630 considered bad credit and scores closer to 700 or above are considered good. Each credit history is unique and there is no set number for having X number of open accounts, missing X payments, or even the effect of X credit history hard pulls. Your score is an aggregate of the above, meaning each one will be a little different, even when people have similar backgrounds or experiences.

Having a bad credit score will certainly not automatically disqualify you from getting a loan, but it will discourage many lenders from taking the chance. If your credit score has suffered some, be ready to explain what damaged your credit score, including any hardships you may have experienced.

The good news is that a bad credit score can be rectified by working to pay your bills on time and lower your account balances. It may take some time to accomplish this, though. You can start by requesting your credit history from each of the three credit bureaus. You have a right to dispute any incorrect information, but the process can be time consuming. It is more than worth it, though, if there is erroneous information present on your credit history.

If you have no credit history, then use one of the options above to get started on building your credit history. While it is almost a catch-22 to open a credit account on no credit, lower limit credit cards or taking out a smaller loan will help you get started. Make sure to keep on top of the account and pay your balance in a timely and responsible manner.

At the end of the day, your credit score is not such a scary proposition after all. If you have taken a look at your credit history and feel ready to either get started on your credit journey or find the right loan, then you can get started with First Palmetto Bank. Learn more about the loans we offer on our website.