So with something as ubiquitous and important as a credit score, it\u2019s helpful to know what goes into creating your score, and how exactly it affects your life.<\/p>\n\n\n\n
Credit Scores are a Recent Invention<\/h2>\n\n\n\n![\"\"](\"https:\/\/morty-content-production.s3.amazonaws.com\/uploads\/2018\/06\/shutterstock_433925647-1024x683.jpg\")
<\/figure><\/div>\n\n\nA long time ago, lenders determined how they gave loans to people using long and arduous processes. Often they would have to call personal references. Or find businesses you frequented to see how well you paid the bills. Sometimes, they’d even drop by your house to have a look around. <\/p>\n\n\n\n
This was as recent as the 1950\u2019s.<\/a><\/p>\n\n\n\nIn this larger, global, digitized economy, it\u2019s impossible to determine creditworthiness in this way. Most people do not have a personal relationship with their banker. Millennials rarely set foot in a bank. And with the growth of online banking, most of Gen Z will follow those footsteps… or lack thereof. Credit scores, invented by William Fair and Earl Isaac, are a way of determining how risky of an investment a loan was to a consumer, without personally knowing the consumer. Based on data and algorithms that are constantly being refined and recalculated, a credit score allows a lender to identify if they can give someone a loan without having to know the person.<\/p>\n\n\n\n
There Is More Than One Credit Score.<\/h2>\n\n\n\n![\"\"](\"https:\/\/morty-content-production.s3.amazonaws.com\/uploads\/2018\/06\/shutterstock_527545666-1024x683.jpg\")
<\/figure><\/div>\n\n\nWhen we think of our \u201cCredit Score,\u201d the number that often comes to mind is the one generated by FICO. The FICO score is the most recognized and widely known score… but there are 49 different<\/em> FICO scores. Additionally, the three large credit bureaus (Experian, TransUnion, and Equifax) all each have their own consumer credit score. And if that isn\u2019t enough, there are literally hundreds of credit scores, each for different types of loans, or specific to a certain organization. There are credit scores that determine eligibility for a credit card or a student loan. There are other, different credit scores to determine your ability to get a mortgage or car loan. <\/p>\n\n\n\n Regardless of which score is used, all credit scores aim to do the same thing. The score rate each consumer on a scale that measures of how much of a risk the consumer represents to lenders. In other words, the score gives an estimate of how likely you are to pay back the money. And the higher your score is, the more \u201ccreditworthy\u201d you are.<\/p>\n\n\n\n
What are Credit Scorers Looking For?<\/h2>\n\n\n\n![\"\"](\"https:\/\/morty-content-production.s3.amazonaws.com\/uploads\/2018\/06\/shutterstock_217661296-1024x678.jpg\")
<\/figure><\/div>\n\n\nSo what makes a person more \u201ccreditworthy\u201d when it is time to decide on lending? Several factors play a role in your ability to get a loan but the most important ones are: <\/p>\n\n\n\n
Payment history
<\/strong>How often you pay your bills on time every month. From your cell phone and utilities to mortgages and car payments, making sure you don\u2019t miss your deadlines is a critical part of keeping a healthy credit score. <\/p>\n\n\n\nLength of credit<\/strong>
How long you have had an open account is also a big factor. You\u2019ve managed to keep an account for several years without going into delinquency? That shows that you\u2019re less likely to be a risky borrower.<\/p>\n\n\n\nTypes of credit
<\/strong>Diversity is key. Having a few different types of credit shows potential lenders that you are able to handle more than one thing at a time. And that increases your credit score.<\/p>\n\n\n\nCredit usage
<\/strong>The general rule is not to use more than 30% of your credit. This isn\u2019t just because it\u2019s a bad idea to overspend. It shows that you\u2019re able to earn enough to not have to rely on credit. <\/p>\n\n\n\nRecent inquiries
<\/strong>Thinking about applying for a few credit cards before you go out and purchase a car? Think again. When you apply for a student loan, car loan, or credit card, lenders will do a \u2018hard pull\u2019 on your credit. This means that the act of them finding out your credit information causes your credit to take a hit. Too many of these inquiries and you could find yourself just shy of qualifying for things you otherwise would have.<\/p>\n\n\n\nWhy So Many?<\/h2>\n\n\n\n![\"\"](\"https:\/\/morty-content-production.s3.amazonaws.com\/uploads\/2018\/06\/shutterstock_1056524840-1024x683.jpg\")
<\/figure><\/div>\n\n\nThere is no \u201cone size fits all\u201d when it comes to people, and this applies to the type of score you have as well. The same person can have slightly different scores with different agencies. This variation is caused by the fact that not all things carry the same weight when a creditor is deciding on how to lend to a consumer. Creditors weigh things differently when deciding to give someone a student loan versus a mortgage, causing your score to be slightly different from one company to the next. <\/p>\n\n\n\n
Despite the variations in each of the different scores, knowing your credit score is incredibly useful and will give you a great ballpark of where you stand. By law, you are entitled to one free credit score<\/a> from each of the major agencies every year. <\/p>\n\n\n\n
<\/figure><\/div>\n\n\nA long time ago, lenders determined how they gave loans to people using long and arduous processes. Often they would have to call personal references. Or find businesses you frequented to see how well you paid the bills. Sometimes, they’d even drop by your house to have a look around. <\/p>\n\n\n\n
This was as recent as the 1950\u2019s.<\/a><\/p>\n\n\n\n In this larger, global, digitized economy, it\u2019s impossible to determine creditworthiness in this way. Most people do not have a personal relationship with their banker. Millennials rarely set foot in a bank. And with the growth of online banking, most of Gen Z will follow those footsteps… or lack thereof. Credit scores, invented by William Fair and Earl Isaac, are a way of determining how risky of an investment a loan was to a consumer, without personally knowing the consumer. Based on data and algorithms that are constantly being refined and recalculated, a credit score allows a lender to identify if they can give someone a loan without having to know the person.<\/p>\n\n\n\n When we think of our \u201cCredit Score,\u201d the number that often comes to mind is the one generated by FICO. The FICO score is the most recognized and widely known score… but there are 49 different<\/em> FICO scores. Additionally, the three large credit bureaus (Experian, TransUnion, and Equifax) all each have their own consumer credit score. And if that isn\u2019t enough, there are literally hundreds of credit scores, each for different types of loans, or specific to a certain organization. There are credit scores that determine eligibility for a credit card or a student loan. There are other, different credit scores to determine your ability to get a mortgage or car loan. <\/p>\n\n\n\n Regardless of which score is used, all credit scores aim to do the same thing. The score rate each consumer on a scale that measures of how much of a risk the consumer represents to lenders. In other words, the score gives an estimate of how likely you are to pay back the money. And the higher your score is, the more \u201ccreditworthy\u201d you are.<\/p>\n\n\n\n So what makes a person more \u201ccreditworthy\u201d when it is time to decide on lending? Several factors play a role in your ability to get a loan but the most important ones are: <\/p>\n\n\n\n Payment history Length of credit<\/strong> Types of credit Credit usage Recent inquiries There is no \u201cone size fits all\u201d when it comes to people, and this applies to the type of score you have as well. The same person can have slightly different scores with different agencies. This variation is caused by the fact that not all things carry the same weight when a creditor is deciding on how to lend to a consumer. Creditors weigh things differently when deciding to give someone a student loan versus a mortgage, causing your score to be slightly different from one company to the next. <\/p>\n\n\n\n Despite the variations in each of the different scores, knowing your credit score is incredibly useful and will give you a great ballpark of where you stand. By law, you are entitled to one free credit score<\/a> from each of the major agencies every year. <\/p>\n\n\n\nThere Is More Than One Credit Score.<\/h2>\n\n\n
<\/figure><\/div>\n\n\nWhat are Credit Scorers Looking For?<\/h2>\n\n\n
<\/figure><\/div>\n\n\n
<\/strong>How often you pay your bills on time every month. From your cell phone and utilities to mortgages and car payments, making sure you don\u2019t miss your deadlines is a critical part of keeping a healthy credit score. <\/p>\n\n\n\n
How long you have had an open account is also a big factor. You\u2019ve managed to keep an account for several years without going into delinquency? That shows that you\u2019re less likely to be a risky borrower.<\/p>\n\n\n\n
<\/strong>Diversity is key. Having a few different types of credit shows potential lenders that you are able to handle more than one thing at a time. And that increases your credit score.<\/p>\n\n\n\n
<\/strong>The general rule is not to use more than 30% of your credit. This isn\u2019t just because it\u2019s a bad idea to overspend. It shows that you\u2019re able to earn enough to not have to rely on credit. <\/p>\n\n\n\n
<\/strong>Thinking about applying for a few credit cards before you go out and purchase a car? Think again. When you apply for a student loan, car loan, or credit card, lenders will do a \u2018hard pull\u2019 on your credit. This means that the act of them finding out your credit information causes your credit to take a hit. Too many of these inquiries and you could find yourself just shy of qualifying for things you otherwise would have.<\/p>\n\n\n\nWhy So Many?<\/h2>\n\n\n
<\/figure><\/div>\n\n\n