By Katie Day
Your LSATs, MCATs, SATs, ACTs and GREs all involve important scores. But there's another one that's equally or more important--your credit score.
what's a credit score?
It’s a number from 300 to around 850; the higher the score, the better. It’s derived from information on your credit report, which has all the juicy details about your borrowing and bill-paying history. Do you pay bills late or on time? How many credit cards do you have? Are you a good credit risk—someone who can be trusted with other people’s money?
why should I care?
Your credit score is the single most important factor determining whether you’ll get approved for a credit card, apartment, or car loan. It’s even a big factor in qualifying for insurance or landing a job. And it may mean the difference between paying a low interest rate or a high one.
what’s the cost of poor credit?
If you leave school and finance a car worth $18,000 for 60 months, you might pay:
$340 a month @ 5% (high credit score)
$458 a month @ 18% (low credit score)
The person with poor credit pays more than $7,000 extra for the same car!
what determines my score?
Five major factors make up your score:
- Payment history (35%)—Do you pay bills on time?
- Amounts owed to creditors (30%)—Do you owe a lot of money to a lot of people? Credit cards at or near their limits lower your score.
- Length of credit history (15%)—How established is your credit history? Getting credit cards and loans early can help build a good credit history, but too many credit cards can lower your score.
- Number of inquiries (10%)--When you apply for a credit card, that company makes an inquiry on your credit report. A lot of inquiries in a short amount of time can lower your credit score.
- Types of credit used (10%)—Do you have a healthy "mix" (loan, credit card, retail card, personal loan)?
what’s a good score?
Lenders have varying standards on what’s considered a ‘good’ credit score. On average, 680 to 720 and higher is considered good.
how can I check my score?
You can order your score through each of the three major credit reporting agencies: Equifax.com, Experian.com, and TransUnion.com, or go to myfico.com for more information. It typically costs $5 to $7. Check out your credit union for more details.