The credit test: what’s your score?

Editor’s note: due to the holiday weekend, this “Money Monday” is appearing on a Tuesday.

Like most students, you probably spend the majority of your time focusing on school and exams. You may have heard the term “credit score,” but do you know what the term really means and how it could impact your future?

The term “credit score” may seem daunting; you may even be afraid to inquire about yours. Perhaps there was a bill that you did not pay on time last year or a student loan that you deferred.

While using too much credit can have a negative impact on your financial well-being, good credit can have a very good impact. Your credit score is the singular most important factor when you apply for a loan to purchase a home, a car or even a dental practice. So, it is imperative that you aim to have a good credit score. The credit score most widely recognized is your FICO score and the information on your credit reports is used to determine your credit score. Your credit score is based upon several factors, including:

Graph via www.MyFICO.com

Graph via www.MyFICO.com

1)    Payment history;

2)    Length of credit history;

3)    Types of credit; and

4)    Amounts owed.

Your credit score tells a potential lender how risky you are as a borrower. If your credit score is higher, you are likely to receive better rates and terms when you apply for a loan. Therefore, to build credit, it is important to not only have a credit history (in the shape of open credit cards and loans), but to make timely and full payments on all of your credit/loan accounts. It is also crucial that you do not use all of the credit line available to you (i.e. do not “max out” your credit card).

Everyone has the right to get their credit report one time per year for free from each of three services: Experian, Transunion and Equifax.You can also purchase your credit score, but you do not need to do this every time you check your credit report. Go to www.annualcreditreport.com to get your free reports.

Because you get three free reports each year, you might get one credit report from one of the three services approximately every four months. Save a copy of the report for your reference. You will want to look for items such as “Potentially Negative Information” on these reports to see whether there is anything that is incorrect or could harm your credit-worthiness.  Be aware that the three reporting services may have slightly different information. So, it is especially important to look at all three over the course of a year.

In addition, you should purchase your credit score at least six months prior to any major purchases because it can take this long to process any changes or make corrections to any incorrect reports.

Have you researched your credit history yet?  Will you in the New Year?

Reference Links:

Free Credit Reports: www.annualcreditreport.com

FICO score: www.myfico.com

~Megan Hille, Esq., Pesavento & Pesavento, Ltd.

 

 

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Comments (3)

  1. Ashley Phares - Contributing Editor

    I’ve heard that just by requesting a credit score report, you actually decrease your credit score. Is that in fact true?

    Reply
  2. Megan Hille

    In general, inquiries from outside creditors will only have a minor impact on your credit score. With that said, each individual’s credit history is taken into account when determining such impact. However, only inquiries made in response to your applying for new credit should affect your credit score; therefore, if you request a copy of your credit report from http://www.annualcreditreport.com, this should not affect your credit score. If your credit history is generally healthy and you pay your bills on time, this will be more important to your credit score than inquiries.

    Reply
  3. Dr. Ryan Dulde

    Great post, Megan! I’m so glad to see that ASDA is addressing these important questions about finance and credit. These are critical conversations that can’t be postponed until after graduation. Here are two other posts I’d like to share that will help soon-to-be dentists with money matters:

    Optimizing Your Credit: http://excursives.com/2011/06/22/3-killer-weapons-to-optimize-your-credit-and-rewards/
    Money…and Other Dirty Words: http://excursives.com/2013/02/13/money-and-other-dirty-words/

    -R

    Reply

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