Credit 101 Part 1

Credit is an essential commodity in today’s world. It is complicated, if not impossible, to operate without credit. Unless you have a large amount of cash or liquidable asset stowed away, you will need credit to make major purchases such as a home or an automobile. But are you aware that you also need credit to purchase insurance and connect utility services in your home?



Additionally, more and more employers check the credit of potential employees and use it as a determining factor in deciding who will or will not be hired. No matter what the situation, it is highly likely that you will be forced to rely on credit many times over during your lifetime. Your creditworthiness or lack thereof will either work for you or against you.

What is a credit score, and how is it calculated? Lenders use credit scores to determine your credit risk. Consumers have three credit scores; one for each of the three credit agencies, Experian, TransUnion, and Equifax. Each rating is based on information submitted by your creditors. Your credit score changes as the information in your file changes. It’s surprising that a large number of consumers have no idea what their credit score is. When they try to obtain credit, they are often surprised and dismayed by what they find.

Credit scores range from 850 down.

  • If your score is within the 760 to 850 range, you have what is considered perfect or a prime credit score.
  • Seven hundred to 759 is good.
  • Six hundred fifty to 699 is considered average.
  • Six hundred twenty to six 649 is mediocre.
  • A credit score of 619 or below is considered poor.

The lower the score, the harder it is to obtain credit. Moreover, any credit you can get will be at cumbersomely high-interest rates. Any credit granted at the poor level will more than likely be considered predatory. Now that you know the importance of credit and the range of credit scores, the next part, we’ll discuss how credit scores are determined.

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