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Understanding Credit and Debt

Having a good or bad credit score can affect the interest rates you get on loans, your ability to get credit cards, buying a house or renting an apartment, and even employment, among many more life aspects! But you can make sure you get the best out of every situation by keeping up to date with your credit score and keeping it healthy. 

Here are some basic tips you can follow:

  • If you already have a credit card, keep paying it off! After 6 months of making payments your credit score may go up a good amount of points.
  • Don’t apply for any more credit cards because that will only bring your credit score down, and take care of your current debt and pay off what you owe. This way you have less debt, and your score goes up if you pay your cards off.  

Once a year, get a free copy of your credit report through Equifax, Experian, or TransUnion. This will help ensure your credit report is accurate. Your credit report shows where and to whom you owe money to—it’s your credit history. The result of which leads to your Fico Score. A FICO score is a type of credit score that lenders often use to decide if they should extend a person credit.  A FICO score is made up of five factors all at differing levels:

1.    35% Payment History: This makes up the largest piece of the FICO score, so it’s very important to make your payments on time.  Payments included in this score are credit cards and loans.

2.    30% Amounts Owed:  Reduce the amount of money you owe, and focus on your high interest debt.

3.    15% Length of Credit History:  Credit cards and installment loans (like a student loan) with good on-time payment history can improve your FICO score.  If you are trying to reduce your credit cards, be sure to keep your card with the longest and best history.

4.    10% New Credit: If you are opening a new credit, be sure not to open too many new lines at once.  The more new credit lines you have the lower the average age of your credit history.  This will reduced your credit score.

5.    10% Types of Credit Used:  Keep in mind that not all debt is equal.“Good” debt is that which will appreciate over time and lower interest rates. This includes a mortgage and a student loan, which will most likely lead to higher earnings. “Bad debt is that which will depreciate over time and higher interest rates. Forms of bad debt are: (1) credit cards, which accumulate interest, (2) car loans, which lose value over time, and (3) high-interest personal loans.

Good credit comes with time, so be plan and be strategic in how you manage it!