Credit Scores

What is a credit score? 

Your credit score shows up in your life in a number of ways.  It influences your interest rates when borrowing for a car or house and  a good credit score can save you tens of thousands of dollars over your lifetime. Some employers will check the credit scores of applicants and landlords may also use it to judge the quality of potential tenants.  A credit score is an expression of the risk associated with lending money to a person.  FICO, the most commonly used score, ranges from 300 at the low end and 850 as the best possible score.  For those students considering refinancing their student loans, their credit score will be a major factor in that process.  

 How is a credit score determined? 

Once someone starts borrowing money from a financial institution, be it a student loan or credit card, all of the payment and account information is aggregated into a credit report.  Based on the information on this report a credit score is determined. It is a good practice to check your credit report on a regular basis to ensure there aren’t any errors or other issues.  Consumers are able to check all three credit reports once a year for free at  The actual formula for determining someone’s credit score is a trade secrete but FICO provides an idea of how the algorithm weights several factors:  

  • Payment history: 35% of your credit score.  In short, make your payments on time.  In the case of an installment loan, like a student loan, the borrower simply needs to make the entire payment in full but with credit cards just the minimum payment is needed.  Keep in mind, that anything less than payment in full will result in interest being charged to the account.   
  • Utilization rate: 30% of your credit score.  Utilization rate is the ratio of spending on credit cards to overall credit limit.  Under 30% is a good practice though under 10% is ideal.  
  • Length of credit history: 15%.  Having a longer credit history is better.  It’s not possible make your credit history longer expect by getting older so starting earlier is better.   
  • New credit: 10%. Each new formal application for an account will appear on your credit report and hurt your credit score for a short period of time.  Be sure open new accounts strategically and avoid it all together prior to a large purchase like mortgage or car loan.  
  • Credit mix: 10%.  Having a mix of credit cards and other revolving lines of credit and installment loans like student loans is helpful.  

How to get started 

Anyone with who has borrowed for undergraduate or graduate school has already established a credit score. For everyone else opening a credit card is an option.  Since 2009 first time borrowers need to be at least age 21 to open the first credit card.  Secured or student credit cards are a good fit for first time credit card users.  

 -Scarlet and Gray Financial Services

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