About this video
Sal explains that a credit score measures how likely you are to pay things like loans and rent on time. Three credit bureaus, TransUnion, Experian and Equifax, use a FICO algorithm to give scores from 300 to 850. High scores make loans easier and cheaper; low scores make borrowing hard and expensive. Paying on time, a long credit history and using little of a high limit help.
You'll be able to
- explain what a credit score measures.
- name the three credit bureaus and the score range.
- describe what different score ranges mean for borrowing.
- list ways to keep a high credit score.
Key words
- Credit score
- A number estimating how likely you are to pay your bills and loans on time.
- Credit bureau
- A company that collects your payment history and produces credit scores: TransUnion, Experian and Equifax.
- FICO
- The company whose algorithm the bureaus use to calculate scores.
- Interest rate
- The extra cost of borrowing money, as a percentage.
- Credit limit
- The most you are allowed to borrow on a credit card.
Transcript
- Your credit score is a measure, some would argue an imperfect measure, of how likely you are to pay for things on time. Let's say you were to take a loan. How likely are you to pay, make the payments on that loan? If you were to get a lease on an apartment, how likely are you to pay rent on time?
Now, there are three credit bureaus. They are TransUnion, Experian, and Equifax, and what happens is, is let's say that you have a credit card and as you pay that credit card, pay the balance, or pay the minimum payment on time, or you don't pay on time, that gets reported to these bureaus.
These bureaus use an algorithm that comes from a company called FICO. It used to stand for Fair Isaac Corporation, and that gives you a score, and each of the three bureaus will have a score between 300 and 850. If you have a score near the high end of that range, if you're in the high 700s or above, that is an excellent credit rating.
People will give you loans. It will be easy for you to lease things, and not only when you get that loan, it will actually be at a lower interest rate. If your credit score is in the 600 to low 700 range, that's decent, you're probably okay, although you might, in certain cases, have to pay a higher interest rate than the people with the excellent credit.
And then if your credit score is in the low range, which would be anywhere from 300 to say the high 500s, you're going to have trouble getting a loan, or in many cases getting a lease, or even if you do, you're going to have to pay a higher interest rate. Now, the ways to get as high a credit rating as possible, is pay your bills on time, pay your rent on time, have a long credit history.
It's good to have credit. So it's good to have a credit card that has a high limit, but to use as little of that as possible. So good luck (laughs) with your credit scores.
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