According to the credit-monitoring bureau Experian, the average credit score in the United States was a record-high 703 in 2019. Tom Quinn — vice president of scores at the company formerly known as Fair, Isaac and Company (FICO) — notes that the average FICO score in the U.S. has gone up consistently year over year since the Great Recession around 2008 or so. Much of the credit for this is given to the Millennial generation, whose scores increased by an average of 25 points between 2012 and 2019.
What does all of this mean?
Reading and understanding credit scores are a critical aspect of maintaining your financial health.
Why Credit Scores Matter
Some of you may recall being admonished to behave in grade school lest your transgressions land on your permanent records. By now, you’re probably aware that was just a farce to help keep kids in line. However, your credit score and the history from which it’s derived does follow you for your entire life.
What’s more, it has the potential to determine whether or not you’ll get that apartment or home loan, a car loan, a credit card, insurance and in some cases — employment. Your credit score can also have an effect on how much you’ll pay for the things you buy using credit.
In other words, it’s a pretty big deal.
Using Credit Responsibly
Avoiding interest charges is a worthy goal of credit card use. Make it your mission to ensure the card issuer derives no revenue from interest charged against your purchases.
In other words, rather than looking at your cards as acquisition tools for expensive items, think of them more as a convenient way to get things for which you can afford to pay cash — without carrying currency around with you.
This way, should an emergency arise for which you might need to pay more than you have on hand, your card will have the capacity to cover it. Freedom Debt Relief reviews are rife with stories of people who experienced the trials of credit card debt firsthand and had to go to great lengths to start vanquishing it.
How Credit Scores Are Calculated
In most cases, credit scores range from a 300 to a 850 — with 850 being indicative of an absolutely pristine credit history.
Classifications of the ranges are as follows:
- Above 720: excellent credit
- 690–719: good credit
- 630–689: fair credit
- Below 629: poor credit
Primary factors used to determine your credit score include:
- Your total debt
- Types of accounts
- Number of late payments
- Age of accounts
High credit scores primarily result from paying your bills on time, responsible use of the credit you have available to you and keeping your outstanding balances low. Missing payments, carrying high balances and defaulting on loans will severely depress your credit score. Applying for new accounts too frequently can also drag your score down.
Why Lenders Rely Upon Credit Scores
In a world in which credit scores didn’t exist, loan decisions would take much longer to contemplate. Lenders would have only the information contained in your credit report by which to evaluate your creditworthiness.
In addition to being time-consuming, it could also be inconsistent. By adhering to a standard, the process is a bit more objective, as it’s pretty much all in the numbers. Basing decisions upon the numbers provides a more accurate picture of the likelihood you’ll follow through on your commitment and make all of the payments as agreed upon.
Reading and understanding credit scores also gives you a leg up when you’re shopping for credit. With an accurate assessment of your credit score, you’ll know how likely you are to be approved for a major purchase and you’ll have an idea of what you’ll be expected to pay in interest on a loan.
Pinstripe Magazine Staff
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