Credit Score – The New GPA
Posted on 2015-06-03 09:00:49
If you are graduating from high school or college, you have probably been quite focused on your GPA. You probably tracked it throughout your school years and knew when it went up or down—and why. With graduation now a memory, it may be freeing to put thoughts of your GPA behind you. But when you enter the post-graduation world, you have a new sort of GPA—your credit score. Like your GPA, it’s a number you should track and be aware of as it changes.
Credit reports and credit scores are closely related, just as your school transcript was related to your GPA. Let’s look at both.
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Your credit report is a collection of data that tells the story of how you handle credit. It lists your accounts and shows how much credit is available to you, your outstanding balances and whether or not you pay on time. Like your school transcript, it has all the nitty-gritty details of what’s taken place.
Credit reports are maintained by credit bureaus (also known as credit reporting agencies). Credit bureaus are private, for-profit companies that collect information from merchants, lenders, landlords and public records. Creditors are not obligated to report to the credit bureaus (Equifax, Experian and TransUnion), but most creditors are happy to do so because they also benefit from the information in credit reports when they make credit decisions.
In simple terms, your credit score is a three-digit number that sums up the information in your credit report. It provides lenders and others with a quick way to analyze your credit history and current situation. A complex mathematical formula compares your credit report details with millions of others, generating a credit score that reflects your creditworthiness at that time. As the information in your credit report changes, your credit score changes.
Why It Matters
Lenders look at your credit score report as a prediction of how likely you are to make your payments and make them on time. A lender may use your credit score to calculate the rate you pay for a loan; the lower your consumer credit score, the higher the interest rate.
But credit scores don’t stop with creditors. Insurance companies, utility companies, landlords and even employers are interested in how you have handled credit. Your credit score sums that up quickly and easily.
Don’t make the mistake of ignoring your credit score. It can affect your life long after you’ve forgotten your GPA.
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