What Is a Credit Score? Rich Mom Answers

My daughter, (aka Poor Kid) is an academic person. So, she is most familiar with grades and scores that usually come out of 100. In school, a 100 can be a perfect score or grade. But, when it comes to credit scores, a 100 is not a good score. In fact, there is no 100 in the range of possibilities for a credit score. Since, I like to share bite-sized financial literacy with you…the following is how I would answer the question:

What is a credit score? 

A credit score is a number that indicates how well you have done paying your bills. It is a three-digit number. The credit score is a grade for how you have handled your credit in the past. This number is used as a prediction of how you will handle your finances in the future. Higher scores indicate that you have been successful in paying bills.

What is a credit score based on?

A credit score is made based on 5 factors with varying percentages of importance: 1) Your payment history (approximately 35%), 2) the amounts that you owe (30%), 3) the length of your credit history (15%), 4) the types of credit that you have (10%), and 5) any new credit that you have (10%). The minimum credit score that is considered “good” is 670. 

How are credit scores used?

You may have heard that credit scores are used for determining if you get a credit card. This is true. Banks also use your credit score any time that you apply for loans, such as car loans, student loans, mortgages, or business loans. But keep in mind that banks decide whether you get loans based on a number of factors, which includes your credit score. You should know that, even if you get a loan, if you have a higher credit score, you can get a better interest rate for that loan.

Did You Know?

Did you know that your credit score can be checked to determine if you can rent an apartment? More and more landlords are checking these numbers. Landlords are looking for renters with better credit ratings. In fact, some landlords will ask for a higher renter deposit if you have a lower number.

How often should I check my credit score? 

You should check your credit score once a month. The federal government says that you should check it once per year. However, I think that that is not frequent enough to catch mistakes, or even worse, fraud.

The Takeaway

So, the takeaway here is: Make sure that you have a high credit score. In a future message to you, I will share ideas on how to have or improve your credit numbers. 

May your financial improvement bring you freedom and the ability to be generous in helping others. 

Love Always, 

Rich Mom

Do you want to know more about what I say about credit scores? Check out some of my other bits of financial literacy.

Don’t forget to subscribe to Rich Mom, Poor Kid. My goal is to encourage future generations to work toward healthy, happy, and abundant lives.  

Do you want to read and learn more about financial literacy? Check out:

What Are Credit Score Ranges?

What Credit Score Do I Need to Rent an Apartment?

Uh-Oh! Did You Forget Everything You Learned in Your Financial Literacy Class?

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Wondering About Rich Mom? 

My name is Valerie, aka “Rich Mom.” Rich Mom Answers is a segment of Rich Mom that gives short answers to my daughter’s personal finance questions. The goal of Rich Mom Answers is to teach her the vocabulary of financial literacy and to answer as many of the common questions that come up when thinking about personal finances. I started sharing these bits of financial information in order to encourage my daughter (aka Poor Kid), because I want her to get better with her finances and know how to create her own wealth.

Wealth

Wealth gives us choices and freedom. It allows us to be generous and help others.  I want her to know how to kick a**, build wealth, and use her time having a beautifully free and generous life. I decided that I wanted to share my message with my daughter’s friends, and you. The intended audience is people aged 30 and under or financial literacy beginners.  My goal is to inspire others to take control of their own finances so that they can make better decisions and have financial improvement.

The information shared here is not intended as financial advice, I’m just sharing my experience and hoping to encourage you. 

I want you to start young:

Building Health & Wealth

Please note: That at the time that I am writing this, I am not an investment advisor. Always do your own due diligence and research before investing. Check with your own investment advisor. 

Also remember that past performance is not a guarantee of future performance.