What is your Credit Score
|
| |
| |
Your credit score is probably one of the most important numbers you will ever be tagged with throughout your lifetime. As aging adults reach retirement age, many don’t think of their credit score as a valuable retirement asset. If you are required to borrow money, chances are this number ranks just behind your social security number and the date of your anniversary.
Each person who applies for a loan will have their credit score checked, and depending upon your particular credit rating, the lender will base his lending decision on your ability to repay your loan. However, if you are a substantial risk of defaulting on your loan, you will be required to pay a larger interest rate versus a person who has an excellent credit score.
A credit score is based on a mathematical formula named by its creators, the Fair Isaac and Company or FICO. It ranges from 350 – 900 (higher means better) and is based upon many factors, such as:
Payment History
Do you repay your debts in a timely and efficient manner? This shows your past history of repaying debts, past collection attempts or any past bankruptcies.
Total Debt
How much debt do you currently hold? Lenders often base your ability to repay your loan request on your outstanding debt. Therefore, if you have significant debts and having difficulty paying your current bills, its doubtful you will score well in this category.
Length of Credit History
How long have you had credit? Building credit from an early age has its advantages if you show a past history of repaying your debts and paying them on time.
Past Credit Inquiries
How many times have you applied for credit in the last year? If multiple sources of credit inquiries show up on your credit report, it could indicate financial instability to repay an additional outstanding debt and will have a negative affect upon your FICO score.
Types of Credit
What credit sources do you currently have? This is an issue of good debt versus bad debt. If you have a mortgage and/or student loan, they are considered good because it is tax deductible and shows increasing earning power. Bad debts typically cover credit card debt or substantial automobile debt.
A key component of credit scores are their dynamic nature, meaning they are recalculated over time. For example, as a college student you may have missed several credit card payments, and forgot to pay several utility bills on time. Yet, as an adult you haven't missed a single debt payment in the last ten years. By this time, your credit score will have drastically improved and will subsequently be awarded with very low interest rates. As most people enter retirement life, they have learned to manage their credit.
Since credit scores affect almost all aspects of our current debt system, it recently became a federal law that you could check your credit ratings from the three credit scoring agencies for free once each year. By checking your annual credit report, you can quickly and easily determine your current credit score. If you have any negative ratings or issues that should be resolved, contact the lender directly and ask how this can be wiped from your record. This usually requires documentation sent via fax or regular mail to prove that the past issue has been deleted from the creditor who reported the problem and has been removed from their database.
Credit isn’t often thought of as a retirement asset. Aging adults should consider their credit score an important part of their retirement plan.
|
|
| |
|
|
|
| |
