Learn about the factors that influence your credit score


Originally published by Jpmorganchase

For many people, credit scores can be intimidating and confusing, involving complex numbers and difficult calculations. The thing is, they’re also important: credit scores can have a major impact on your finances—especially down the road, when you’re applying for a credit card, car loan, or mortgage.

With that in mind, here are the basics of your credit score: what it is, how it’s calculated, and—most important—a few tips for improving it!

What is a credit score?

Simply put, a credit score is a measure of your credit worthiness, or reliability as a borrower. Lenders look at your score to see how likely you are to repay money that you borrow. They also use your score to better understand the state of your finances, including your payment history, the length of your credit history, how much credit you are using, your total debt and other factors.

Who determines your credit score?

VantageScore and Fair Isaac Corporation (FICO) are the two major scoring systems that financial institutions use to measure your credit worthiness. FICO uses five categories to calculate its scores, while VantageScore uses six. Using these various categories, explains money expert Farnoosh Torabi, credit scoring systems can help your financial institution get a better picture of your overall credit situation. “They can capture all the different ways that people are using credit and are still being credit worthy and credit responsible,” Torabi says.

For VantageScore, the result of these six categories is a three-digit number that represents your credit worthiness. Anything above a score of 720 is considered “good” or “exceptional.” Scores below 720 fall into “fair” or “bad” range.

Your credit score is really valuable because it captures your credit worthiness, which can go a very long way in achieving your life goals.

What makes up your credit score?

Payment history

The first—and most important—factor in your credit score is payment history. Aim to pay all bills on or before their due date and pay down your debts consistently over time. A late or missed payment on your loans or credit card bills can stay on your credit report for up to seven years.

“An easy way to set yourself up for success is to consider setting up auto-reminders or auto-payments with your financial institution,” notes Pam Codispoti, Head of Chase Consumer Branch Banking. “They’re especially helpful for balancing life’s many demands.”

Age and type of credit

Not all credit is created equal: having different types of accounts—like auto or student loans, credit cards, and home mortgages—can work in your favor. Having accounts that have been open for a long time can also help. In fact, VantageScore(Opens Overlay) ranks the age and diversity of your credit as the second-most-important factor in calculating your score.

With that in mind, it may be worthwhile to keep your old accounts open, even if you aren’t using them. Their age could improve your score.

Percentage of credit used

The amount of credit you use—also known as your credit utilization—is another very important factor in calculating your credit. Remember: just because your credit card has a $10,000 limit doesn’t mean you should use all of it. VantageScore recommends keeping your balances under 30 percent of your total credit limit.

Total balances and debt

Paying off your debt can be a long, expensive process—especially if you booked that once-in-a-lifetime vacation on your card—but the sooner you do it, the better your credit score.

According to financial website Credit Karma(Opens Overlay), lenders and financial institutions prefer to see lower balances on your credit accounts because it suggests you’ll pay off your loan quickly. Your total balances may not be as crucial as your payment history, but putting some extra money toward your debt each month will improve your profile.

Recent credit applications

It may seem easy and harmless to apply for a new travel credit card, auto loan, and home mortgage in one fell swoop, but it can actually hinder your overall credit score. Before approving a new card, loan, or other account, lenders look at past and current behavior to predict future financial performance. This is called a hard inquiry, and can lower your credit score by a few points. Opening up several accounts at once can trigger several hard inquiries, leading to a more significant drop in your credit score. It also can signal to a lender that you may be taking on too much credit debt, which could be difficult for you to service in a timely manner.

While VantageScore celebrates having different types of credit, spreading out your applications for new accounts could help your score.

Available credit

While available credit may not be the most important factor on the list, using only the credit you need will be in your overall score’s favor. In fact, a recent report by VantageScore(Opens Overlay) found that prime consumers keep an average of $20,000- $22,000 worth of available credit that they do not use.

The Green Link

The $36 Trillion Bill for Neglecting Climate and Free Trade


In the Covid crisis, governments have struggled to find the right national policies—and also to coordinate an effective global response. They’ll have to do better when it comes to confronting the biggest challenges of the age: rising temperatures and a fracturing world economy.

Taken together, rapid action against rising temperatures and a renewed commitment to globalization would put the world economy on track for 2050 output of $185 trillion. Delaying moves to cut carbon emissions, and allowing cross-border ties to fray, could cap it at $149 trillion—the equivalent of kissing goodbye to the entire GDP of the U.S. and China last year.

If there were such a thing as a global economic planner, they would clearly pick the first option.

In the real world, it’s not that simple. Whether they’re in Washington DC or Beijing, Brussels or New Delhi, leaders don’t typically make the pursuit of a global optimum their top priority. They’re focused instead on national interests, and the relative economic strength that determines the geopolitical pecking order.

Choices in the fight against climate change, and the degree of cross-border integration don’t just affect the size of the global economic cake. They affect how it’s divided up as well.

An early start on cooling a hot planet would be good for everyone, but it would benefit Southern-hemisphere emerging markets much more than advanced Northern economies. And the same goes for globalization. More of it would make all countries better off—but the biggest gains would accrue to middle-income economies sprinting toward the technological frontier, not wealthier rivals attempting to cling onto their competitive edge.

In that sense, Donald Trump was right.

For the U.S., commitment to a low-carbon, free-trade future would—all else being equal—hasten the moment when it gets overtaken by China as the world’s biggest economy. In Bloomberg Economics’ baseline forecast, that seismic shift occurs in 2035. By 2050, China would have significantly extended its lead.

In an alternative future, where the U.S. delays action against climate change and throws up barriers to trade and technology transfers—as it has in the past four years—China catches up with the U.S. in the 2040s, but never moves decisively ahead. In a smaller and hotter global economy, the U.S. would still have a claim to the number one spot.

Forecasting this far into the future isn’t a precise science. Bloomberg Economics projections represent the best estimate of stylized models that don’t claim to account for every variable. Still, they provide a sense of the immense impact that paths chosen today will have on the size and shape of the world economy. And the conclusions are clear enough.

The Covid shock—more than a million dead and the worst recession since the 1930s—provides a wake-up call on the need for an early, aggressive and coordinated response to the threat of climate change and risk of de-globalization. That response will have distributional implications that may not look favorable to governments in the West, and they will be tempted to hit the snooze button.

Without farsighted leadership, progress on the greatest challenges of the age will be difficult to achieve.

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