Credit scores matter a whole lot. A good credit score (between 620 and 850) will often make you eligible for the best travel rewards and cash back credit cards and lenders will be able to offer you the lowest interest rates on home and auto loans.
My guests is Liz Weston from NerdWallet. Liz knows a lot about credit scores and we had a lovely chat about the highs and lows of credit scores…AND THEN THE NEWS ABOUT THE EQUIFAX BREACH DROPPED. So I freaked out and got back on the phone with Liz to talk about how we can all protect ourselves.
Listen on your platform of choice!
A lot of things can negatively impact your credit score, like falling behind on credit card payments. If you do fall behind and your score suffers, you DO have options.
Your credit score is of course used by lenders for auto, home, personal, and business loans but it’s also relevant for insurance companies and when you get a new cell phone.
It’s also pretty nuts that car insurers use your credit report to predict whether you’ll file a claim (aka get in a accident) more than your actual driving history.
The score itself is on a 300-850 scale (most FICO, Vantage 3.0 score).
FICO scores are the most used.
Of course every lending situation is different but here are some general brackets:
Liz says that 760 is a great score. You’ll have access to great interest rates.
As you slip down towards the 600s, lenders may get a little nervous. Around 620/640 is when your score becomes subprime, this is when credit gets expensive.
There’s no such thing as a score of 0, but you can have no credit history. Even if you don’t think you have a credit history, go to Annual Credit Report dot com to check.
Nothing is permanent in credit, that goes for both good and bad credit.
There are two ways to build up your credit score.
- Through a secured credit card. Here you essentially put up your own cash deposit as collateral to get a small limit credit card. Make sure you’re responsibly charging a balance and paying it off each month to build up a positive credit history.
- Through something called a credit builder loan. These are offered through online lenders like Self Lender or a Community Development Financial Institution (here’s a list of those institutions). A Credit Builders Alliance study found that these loans can improve your score by up to 35 points. I found a credit builder loan in New York City through the Neighborhood Trust Federal Credit Union that offers a $500 to $2000 loan for 8%.
What if you have no credit history either because you’re a friggen baby (kidding) or you just never wanted the temptation of a credit card? How to build up credit history:
- Start building through a secured card or credit builder loan. It’s gonna take about six months for FICO to show a score, Vantage will be sooner (sometimes as little at one month).
- Get added as an authorized user to a parent or significant other’s credit card. Their credit history will appear on your credit report.
Go visit your local library! Librarians are heroes.
But what if you’re really really screwed?
You can contact a non-profit credit counselor. The National Foundation for Credit Counseling (that’s NFCC.org) will look through your situation and help you figure out a debt management plan. Liz also recommends getting another perspective from a bankruptcy attorney, it’s helpful to have both sides to figure out what the best way forward is for you.
It’s bad news. Freeze your credit. Do it now.
Barry Loudermilk of Georgia’s 11th district is trying to pass some shady legislation.