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The Basics of Credit Scores

​​Your credit score plays a big role in your financial life. It can influence your ability to get a loan or credit card, buy a car, purchase a home and even qualify for certain jobs! Take some time to learn about credit and how to use it responsibly.

Your first experiences with credit can be a little confusing, especially when you’re starting to borrow and build your credit score. To make things easier, here’s a quick overview of the basics of credit and credit scores:

What is credit?
Credit gives you the ability to borrow money for the things you need now by agreeing to pay it back later. Having good credit can make it easier to borrow smarter and reach your financial goals in the future.

What is a credit score?
Think of your credit score like a report card. It reflects how well you manage your credit and provides a “snapshot” of your overall credit picture. Credit scores generally range from 300 to 850. The higher your score, the better!

Lenders use your credit score to understand how well you’ve repaid loans in the past and to decide whether to approve you for a loan or other credit in the future. Your credit score may also influence the terms and interest rates you qualify for. Working towards a good credit score can help you save hundreds or even thousands of dollars in interest payments over time.

What makes up a credit score?
There are several key factors that make up your credit score, including:

  • Your payment history
  • The amounts you owe/your credit capacity
  • The length of your credit history
  • New credit accounts
  • Your credit mix, or the types of accounts you have In general, your payment history and the amount you have available versus how much you owe can have the biggest impacts on your score.

What doesn’t affect your score?
The following factors are not considered when determining your credit score:

  • Your debt-to-income ratio
  • Your income
  • Your length of employment
  • Your length of residence
  • Demographics (Example: Age, race, gender, etc.)

Get started with credit the smart way!
Now that you know about the basics of credit, you’re ready to take steps to borrow smarter and establish a healthy credit picture! Check out WPCU’s tools for reaching Financial Flexibility and Freedom​ for more helpful resources or visit your local Member Center to talk with a Financial Coach about smart ways to start your credit journey.