It’s Lily here, GirlMoguls, reporting for my next Financial Literacy Lesson (FLL). Remember how I was helping my mom out with this financial literacy stuff? Well, I decided to make it a series of lessons to help us girls learn about the intense world of finance. I mean, who really knows all the bail-out bank stimulus stuff off the top of their head? Well, I’m here to help!
Today, I’m investing the term “credit score”. I’ve seen TONS of those commercials for things like “Free Credit Score!” websites and such. They always mention numbers like 546, 732, and 698. I was wondering what this is all about. First of all, what is a credit score? And secondly, is it always a three digit number?
I found out that a credit score is a score maintained by the FICO (created by the Fair Isaac Corporation). It is in fact a three digit number, and it ranges from the number 300 to the number 850. Basically, the higher your score is, the more allowance you get from banks with things like loans. There are a bunch of factors that contribute to your score. They include:
-Your History of Payments (35%): this accounts for whether you pay your bills on time or not.
-The Amount of Money You Owe (30%): this accounts for how much money you owe on your credit cards and loans, and if you have any available space left on them.
-Length of Credit History (15%): this accounts for the amount of time you’ve had a credit history, like for how long you’ve had credit cards and whether banks allowed it
-Type of Credit Used (10%): this accounts for what kinds of credit you have, like cards or loans
-New Credit (10%): this accounts for any new credit inquiries
A good FICO score is very important to have because that is allows you to take out loans and mortgages from banks, and even more importantly, it allows you to negotiate a lower inerest rate to apy the bank back with. If you have a bad credit score, the bank doesn’t trust you as much and will demand that you pay a higher interest rate. Hope that explains a few things GirlMoguls!
And there is such a thing as a free lunch – be sure to check out this week’s giveaway – this totally cute lock and key bracelet