Credit Scores

Jun 3, 2011

My husband and I, a few months back, taught a financial class.  One of the things we realized in the midst of the course is that people do not understand the concept of their credit score.

As financial expert Dave Ramsey puts it, "your credit score is not an indicator of winning financially. All it tells you is whether you are good at borrowing money and paying it back."

In case you are not aware, this is how your FICO score is determined:

  • 35% of your score is based on your debt history.

  • 30% is based on your debt level.

  • 15% is based on the length of time you’ve been in debt.

  • 10% is based on new debt.

  • 10% is based on type of debt.

  • You know what this means?  The only way to have a great credit score is to get into debt, stay in debt, yet pay it off perfectly. 

    If you pay off all your debts, and don't take on any more, your FICO score will become indeterminable.  You won't even have one! 

    Another thing to keep in mind.  You should never pay a company to get your credit report.  You are entitled to one free credit score a year.  Don't pay for what you can get for free!


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