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Understand What Impacts Your Credit

Learn what goes into your credit score so you could find ways to improve it.


Video Transcript

Chapter 1: Impacts to Your Credit: Payments, Balances, and Credit History

In order to get better control of your credit, you need a good grasp on what credit is and how it works. This part of the conversation defines credit and outlines the key components of a credit score.

Change starts with knowledge, and that's what this chapter is all about. Watch the video and download the  Credit Myths: Discredited Guide  as a guide and a place to make notes for what credit facts resonate with you.

The DNA of a credit score. 

Let's imagine you're getting ready to buy a car. You've saved a good portion of the money to pay for it, but you'll still need a loan to help purchase it from the dealer. Before any lender decides to give you a loan for the car, they will check your credit score. 

Your credit score is made up of five key components: payment history (35%), credit utilization ratio (30%), length of credit history (15%), credit inquiries (10%), and credit mix (10%). 

This data feeds into a credit report. The report basically indicates the level of responsibility with which you pay your bills and loans. If you have a history of consistently missing payments and you max out your credit cards, you should anticipate a low credit score. On the other hand, if you make your payments on time and you stay under 30 percent of your credit limits, you'll have a higher credit score. 

A higher credit score is great, but if you have a lower score, it's not the end of the world. You could make adjustments to improve your credit relatively quickly. 

Budgeting Tip: Credit scores range from 300-850. Higher credit scores are favorable to lenders. 

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