Credit Scores and Reports 101 (Credit Card and Loan Basics 2/3)

Summary

This video introduces Jasmine, a college student new to credit, explaining how to understand her credit report and score. The script outlines the key components that make up a credit score, such as payment history, credit utilization, and types of credit used. Viewers are advised on how to improve their credit score through responsible credit use and setting up automatic payments. The video also emphasizes the importance of checking credit reports for errors and provides helpful tips on building a credit history, particularly through student or secured credit cards.

Takeaways

• 😀 Jasmine has no credit history and needs to start building a credit score to access better financial opportunities.
• 😀 A credit report is a detailed history of credit usage and includes payment history, account status, and more.
• 😀 The FICO credit score summarizes your credit report into a number between 300 and 850, with higher scores leading to better financial opportunities.
• 😀 A good credit score can help with getting lower interest rates, affordable insurance, apartments, and even a cell phone plan.
• 😀 The five components that make up a credit score are: Payment History (35%), Credit Utilization (30%), Length of Credit History (15%), Recent Inquiries (10%), and Types of Credit Used (10%).
• 😀 Payment history is the most important factor; paying bills on time, even the minimum, is crucial to maintaining a good score.
• 😀 Keep credit utilization under 30% of your credit limit to avoid negatively impacting your score.
• 😀 Don’t close old credit accounts as it could shorten your credit history, which affects your score.
• 😀 Avoid applying for new credit unless necessary, as each inquiry can slightly reduce your score for the next 12 months.
• 😀 Use credit cards designed for people with no credit history, such as student or secured cards, to begin building credit.
• 😀 Check your credit report for mistakes at least once a year, as errors can significantly impact your credit score.

Q & A

What is a credit report?

A credit report is a detailed history of your credit, including information such as your payment history, the age and status of your accounts, and other financial data, recorded by the three major credit bureaus: Transunion, Experian, and Equifax.

What is a FICO credit score?

A FICO credit score is a calculated number between 300 and 850 that summarizes your credit report. It is used to assess your creditworthiness and determine the interest rates and rewards you may receive from financial institutions.

Why is a high credit score important?

A high credit score is important because it can help you qualify for lower interest rates on loans, better rewards from banks, and is also essential for securing affordable insurance, renting an apartment, and even qualifying for a cell phone plan.

How can you check your credit score for free?

You can check your credit score for free through several websites that provide easy access to your score and credit report, a service that was once expensive and difficult to obtain.

What are the five components that make up a credit score?

The five components that make up a credit score are: Payment history (35%), Credit utilization (30%), Length of credit history (15%), Recent inquiries for credit (10%), and Types of credit used (10%).

What is the most important factor in determining a credit score?

The most important factor in determining a credit score is payment history, which makes up 35% of your score. Paying bills on time, even if it's just the minimum payment, is crucial.

How can you improve your credit score related to credit utilization?

To improve your credit score in terms of credit utilization, it is recommended not to exceed 30% of your credit line, both in total and for each individual account. Paying off balances early or requesting a credit line increase can also help.

Should you close old credit accounts?

No, you should not close old credit accounts unless absolutely necessary. Closing old accounts can reduce the length of your credit history, which makes up 15% of your credit score.

How do recent inquiries for credit affect your score?

Recent inquiries for credit make up 10% of your credit score. Every time you apply for a new credit card or loan, it can slightly lower your score for the next 12 months.

What should Jasmine do to start building a credit history?

To start building a credit history, Jasmine should consider opening a credit card, such as a student or secured credit card, which is designed for individuals with no credit history. This will help her build credit over time.