GPA is an acronym for grade point average, which represents of your overall academicperformance. You probably know your GPA, or at least are familiar with the term from reportcards and college applications. But did you know that your credit score is like a financial GPA?
See Also
What Is a Good Credit Score? - ExperianWestlake man has one of the highest credit scores in the entire country, 848 out of 850What’s a Good Credit Score for a 20-year-old?What Is a Good Credit Score? - NerdWalletHow is my credit score like a GPA?
Just like your GPA, your credit score is a cumulative number that represents what you havedone, only it exists in the world of credit instead of academics. The same way colleges useyour GPA to forecast academic success, your credit score is a predictor of how likely you are tobe financially responsible and repay a loan.
So, how is it calculated?
- Your credit score is calculated in this way: 35 percent is based on paymenthistory; 30 percent is outstanding debt and how much credit is alreadyavailable, even if you haven’t used it; 15 percent is based on the length of timea consumer has had credit; 10 percent is based on the amount of inquiries intoa report; and 10 percent is based on current types of credit.
- To start building a good credit history, open a checking or savings account.For your first credit card, consider tying the credit card to those accounts. witha low credit limit is a good option. You could also consider obtaining a smallloan, such as a used car loan, and having a parent or other trusted adult withgood credit co-sign the loan. That way you can piggyback on their good credithistory
- Your credit score will be a number between 300 and 850, depending on thecriteria used to calculate. A credit score of 720 or above is good, and willenable you to be approved for a loan more easily and at a better interest rate.
How do I raise my credit score?
- Pay your bills in full and on time.
- Check your credit report once a year. Review for errors or inaccuracies andaddress any you find. Check it for free at annualcreditreport.com.
- Watch for warning signs of credit trouble. For example, if you’re only able topay the minimum payment, if you pay late, or if you use credit for everydayexpenses, you’re already in trouble. Make sure you think about what it is thatyou’re using credit to buy.
- Stick to a spending plan. It may be difficult when you’re first getting started, buta budget is the first step to financial freedom. Start by writing down what youspend for a month or two, you’ll be surprised how much you spend and where,and hopefully find ways to save.
Source: American Bankers Association
