What Does Your Credit Score Say About Your Financial Health?Your credit score, the three-digit number lenders use to help measure your credit worthiness, has the power to save—or cost you—thousands of dollars in interest over your lifetime. That’s because your score impacts how much lenders may allow you to borrow and the interest rate you will pay on those loans. For example, a low credit score can result in paying thousands more for the same car that someone with a higher score is able to finance at a lower interest rate. When it comes to mortgages, which are often financed over 30 years, paying a higher interest rate can cost borrowers tens of thousands more over the life of the loan. That’s money you could be using to pay for other important goals, such as saving for your retirement, a child’s education, or paying down debt, which can impact your overall financial health. That’s why it’s so important to understand the factors that go into determining your score and the steps you can take now to improve or maintain a strong credit score. How is your credit score determinedMore than 30 years ago, the Fair Isaac Corporation (FICO) introduced FICO® Scores to provide an industry-wide standard for scoring creditworthiness that was fair to both lenders and consumers.1 The formula used to calculate your score takes multiple factors into account, such as your payment history, credit utilization ratio, credit history, credit mix, and more. While multiple versions of FICO scores exist, the one most widely used by lenders and the three national credit bureaus (Experian, Equifax and TransUnion)has a base score range between 300 and 850.2 A score above 670 is generally considered good, while anything above 800 is considered excellent.3 Where can you find your score?Many financial institutions provide customers with free access to their credit scores, which are subject to change monthly. The national credit bureaus provide access to your credit scores and your credit report, which is a record of your credit history. Typically, you're entitled to one free copy of your credit report every 12 months from each of the credit reporting companies. However, during the COVID-19 pandemic, all three credit bureaus agreed to offer free weekly credit reports online.4 To order your free credit reports, visit AnnualCreditReport.com, the only federal government-authorized website for obtaining free credit reports. It’s important to check your credit reports at least annually to make sure they are error-free and there have been no fraudulent attempts to open credit in your name. Each credit bureau provides instructions on its website for correcting errors or disputing entries on your reports. How can you improve your score?Some of the best sources of information to help strengthen your credit are the same organizations that determine and monitor your scores, including the three national credit bureaus and myFICO.com. Each of these organizations provide free online educational content to help consumers protect and improve their credit scores. For example, Experian recommends the following four steps:5
While a strong credit score can be an important indicator of overall financial health, it’s only one consideration when it comes to determining financial fitness. If you’re seeking ways to improve your financial health, contact the office to schedule time to talk. This information was written by KRW Creative Concepts, a non-affiliate of the broker-dealer. 1 https://www.myfico.com/credit-education/what-is-a-fico-score |

Financial Watch | October 2021
October 28, 2021