Why Should I Care About My Credit Score?
Do you know what a credit score is? How it impacts you? Have you had conversations with your family and friends regarding their credit score and how they maintain it?
In all honesty, I was not very aware of what a credit score was or, how it impacted me until I bought my car last January. Now, with graduation approaching quickly, I have started to realize all the ways a credit score affects my life after graduation.
I feel truly lucky to have the opportunity to work at a credit union, especially in my current situation. With that being said, I used my available resources and asked some of our employees here at Anheuser-Bush Employees’ Credit Union their advice on why I should care about my credit score.
Larry Sewell: Vice President of Corporate Partnerships
“When I graduated from college, I had no idea what a credit score was. What I did know was, that if I were to borrow money, it would be important to pay it back in a timely manner even though I did not know it would impact my credit score. I guess the intent is, when we borrow, we should borrow with the intent to earnestly and forthrightly pay the lender back on time. Paying things on time, your credit score is a result of that. Not to do it so you can have a good credit score.
It doesn’t take much to tear down what took you so long to build. Keep in mind even though it’s nice to have a good credit history and report, it doesn’t take many missing payments to impact your credit score negatively.
Coming out of school, most lenders know you will have some student loans to pay back. If that’s all you have, use that to help build your credit score. You do not have to have a credit card. For me, I am good with having a debit card because I can only spend what I have. Whereas a credit card, I can overdraw and not have money to pay back what I spent. With a debit card, I have more discipline.”
Pier Alsup: Chief Community Engagement & Social Responsibility Officer
“Your credit score is important for a number of reasons since employers, insurance companies, utility companies, property owners and loan providers all can use your credit score to learn about your personal finance habits. Keep in mind, the higher your credit score, the better you appear as an employee, a driver or homeowner, a tenant, or borrower. And, the better you look usually translates to paying less for insurance premiums, less on utility deposits, and less on loans by receiving lower interest rates and better terms.
Some tips to maintain a good credit score include use your credit wisely and don’t over extend, pay off your balance, if you cannot, always pay at least the minimum and don’t use one credit card to pay off other credit cards. “
Brandie Bulard: Internal Success Partner
Brandie became interested in learning about her credit score when she started to apply for jobs and realized she did not know much about it. She realized she never had conversations with her family or friends about how impactful a credit score is on her future.
When applying for a job here at the credit union, she was told she had to give a presentation and what better presentation than a topic she is interested in and she wanted to share the information that she learned with others, because she felt this was a topic that a lot of young people like herself were not fully knowledgeable about.
In her presentation, Brandie mentioned that in addition to your credit score, we also have a FICO score (or commonly referred to as a “credit score”). A FICO score is a type of “credit score” created by FAIR, ISSAC, AND COMPANY (FICO). This score provides lenders details on the borrowers’ credit report to assess credit risk and determine whether to extend credit. Brandie states that it is a score of “worthiness”.
Your FICO score is made up of 5 categories. Each of the categories make up a certain percentage that is weighed in on your overall score.
1. Payment History 35%
2. Amounts Owed 30%
3. Length of Credit Used 15%
4. Types of Credit Used 10%
5. New Credit Accounts 10%
Brandie notes that “90% of all Financial Institutions in the U.S. uses the FICO score in their decision making process.” This is extremely important to remember and take into consideration when you start applying for jobs, apartments, loans and, houses.
Brandie suggests to download free apps that can send alerts directly to your cell phones when a company views your credit score, when it’s updated and, they will offer suggestions how to improve your score. She advises her three main reasons to be educated about your credit score is “self-aware, knowledgeable on the dos and don’ts, and confident when applying for new loans/refinancing.”
Larry Jackson: Vice President of Real Estate
Larry informed me credit score is of the upmost importance when he reviews first-time home buyer mortgage applications. Financial institutions are now taking into considering the extensive amount of student loans graduates are likely to have and are putting that into perspective when considering them for a home mortgage.
Having a low credit score means you could “pay as much as double what someone else is paying just by having a low credit score and being recognized as a higher risk” Larry says. Credit Score ranges from 320-900. “One perspective could be as if someone has an 820 credit score, the financial institution has an 80% chance of the borrower repaying on time. Whereas someone with a 600 score provides the financial institution with a 60% chance. Also consider than anything can happen to anyone and even if the borrower has a 900 perfect score, there is always a possibility of missing payment.”
Larry says “Creditors can’t count future income but do understand that recent graduates will start at a lower level job with a lower income and in time, will advance and so will their income.” ABECU still looks at credit score as an indicator if a borrower will be able to manage your payments on time. His advice? Consider your college loans a form of long term debt and a great way to improve your credit score showing a long line of credit. He pro-tip? “Think of your credit score as a responsibility score.”
Brittney Taylor: Business Account Specialist
I asked Brittney the difference between working with a credit union versus a bank, when working on improving credit. She said “credit union is more “hand-holding” and takes the time to teach and inform members everything they need to know where often a bank is very cut and dry.” She went on to say “As a credit union, we are always doing everything for our members since they are an ‘owner’.”
I asked Brittney when she thought was the right time to start building a credit or, worrying about credit score and she said “why learn the hard way when you can learn early and be ahead.” This is significant because when I was graduating high school, I didn’t even know what a credit score was nor did I have anyone tell me to start paying attention to it. Now, graduating in December, I am realizing just how much having a high credit score is important to my future.
Everyone I interview mentioned 30% when talking spending limit on their cards. So I asked, “What is significant about 30%?” Brittney explained that “Financial Institutions look at your spending habits. If you spend more than 30% of your available credit, it becomes to come into question how will your ends (payments) be met? Spending over a certain percentage (in most cases the rule is 30%) may appear as if a borrower cannot manage money wisely.” This in turn, makes financial institutions question the ability to repay and may impact loan approval.’
Moral of the story? Just because I have a $500 limit does not mean I should spend up to that limit because of a few reasons. First, maxing out my limit actually hurts my credit score. A rule Brittney always abides by is the 24 hour rule. The rule is “wait 24 hours to purchase something. After 24 hours, if you still really need it, buy it. If not, you’ll know it was just impulse.”
Other helpful tips Brittney shared include: paying your bills with your credit card. This way, you are paying on time and maintaining your credit score. When the credit card payment comes in the next month, pay it off with the money you would have used when your bill payment came. This increases your credit score and shows a positive payment history.
If I had to choose 5 KEY takeaways from my interviews they would be:
1. Pay off your credit card – always.
2. Don’t close a credit card, you need long standing credit
3. On-time payments are crucial to your credit score
4. Just because you have the limit, does not mean you need to spend it (30%)
5. Start building credit early