Credit?
Credit is a value of money that someone, such as a bank or credit issuer, has loaned you that you’ve promised to pay back, typically with interest. This could include car loans, mortgages, service agreements like a cellphone account, or a credit line on a credit card.
Credit Score?
A credit score shows financial institutions how responsible you are at paying your debts. A higher credit score not only facilitates easier loan qualification but also results in lower interest rates. Credit scores generally range from 300 to 850.
You’ll likely need credit to get a credit card or mortgage, rent an apartment, and, in some cases, even get a job.
The credit bureaus rely on credit scoring models such as VantageScore and FICO to translate all this information into a number. These are generally what they are comprised of:
Payment History (35%): This is the record of your payments on credit accounts, including credit cards, mortgages, and other loans. Paying bills on time is crucial for a positive credit history.
Credit Utilization (30%): This represents the ratio of your current credit card balances to your credit limits. It's advised to keep this ratio low, ideally below 30%, to demonstrate responsible credit use.
Length of Credit History (15%): The length of time your credit accounts have been established is considered. A longer credit history is generally viewed more favorably.
Types of Credit in Use (10%): Lenders like to see a mix of different types of credit, such as credit cards, installment loans, and retail accounts. This indicates that you can manage various types of credit responsibly.