Understanding Credit By maeve levy

What is credit?

Credit is money that you borrow from your bank so that you can buy goods such as a house, a car, clothes, etc. You receive this credit from a credit grantor, which all depends on your credit score.

Why is credit important?

Credit is important because your credit history will determine the loans you will get in the future. It is very likely that you will need to borrow at some point in your life, so when a lender sees a good credit score, it is likely they will let you borrow from them.

What is Credit Score?

Credit score is the analysis of a person's credit expressed numerically. This is expressed with a three digit number ranging from 300 to 850. It is designed mostly for lenders to see the likelihood of being a responsible credit owner.

What do the numbers mean?

300 is the lowest credit score a person can have. Receiving the worst credit score is due to the failure of not keeping up with credit agreements. Anything below a 640 is considered a poor credit score. If you have a good credit score of 650 and above, it is because you have been responsible with spending, budgeting, and paying back.

What is a credit report?

A credit report is a detailed report of someone's credit and spending history. This is produced by the credit bureau.

What are the factors that make up your credit score?

There are five factors that make up your credit score. These include your payment history (35%), credit utilization (30%), length of credit history (15%), new credit (5%), and credit mix (5%).

How can you establish, build, and maintain good credit?

As a teenager, owning a credit card comes with a lot of information you need to know in order to maintain a good credit score. It would be smart to co-sign with your parents for a debit card, get in habit of checking your credit score, start with a small limit on your first card, and always make sure to budget. Having a credit card is a privilege that can easily be taken away by your parents, so following these tips can almost ensure that you will get a good credit score.

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