Do you know your credit score? Do you really understand what your credit score means? There was a time when I would have answered “No” to both of these questions. And today I know that many of the money mistakes I made in the past would have been avoided had I really understood credit.
I want to help you avoid those mistakes and so over the next several weeks I’ll be doing a series on credit. Today we’ll start with some basic, but important definitions:
CREDIT SCORE: Your credit score is a statistically derived numeric expression of your creditworthiness. It is used by lenders to assess the likelihood that you will repay your debts. Your credit score is based on your past credit history. It is a number between 300 and 850, the higher number the more credit worthy you are deemed to be.
Once I did learn my credit score it was 420, which, in case you were wondering, is awful! But I’m proud to say that today my score is 740!
CREDIT BUREAU: An agency that researches and collects individual credit information from banks, public records, and other sources and provides it for a fee to creditors so they can make a decision on granting loans.
Trust me the credit bureau was telling creditors to run from me as quickly as possible back then, but today I am a creditor’s dream!
CREDIT REPORT: A detailed report of your credit history, prepared by a credit bureau. Your credit report includes personal data, a credit score, a summary of credit history and detailed account information.
Once upon a time my credit report was so jacked it wasn’t even worth the paper used to print it.
CREDIT HISTORY: A record of your demonstrated responsibility in repaying debts. It consists of information such as: number and types of credit accounts, how long each account has been open, amounts owed, whether bills are paid on time and number of recent credit inquiries. It also contains information regarding whether you have any bankruptcies, liens, judgements or collections. This information is contained on your consumer credit report.
Let’s just say I am glad that I have rewritten history in terms of my credit.
CREDITWORTHY: The measure of your ability to repay debt.
My creditworthiness at one point was no ability to repay debt, but today I am debt free!
Ok, now that we have the basic definitions out of the way, join me next week for part 2 where I will explain how your credit score is tabulated. We will delve into the different data used and the five categories that make up your score. Lord knows back in the day my data was a hot mess, but today I have credit offers on a daily basis!