Credit Basics You Should Know This Year

It’s the dawn of a new decade and by now, getting smart about credit is especially important at this crucial time. Let’s quickly dive into the basics of what credit is and what you can do to keep it in check this decade.

What Is It, And How Does It Work?

Credit allows us to buy something today, knowing fully well that we will have to pay it back later. How you manage this credit will determine how much you can borrow in the future. Lenders and financial institutions lend you an amount for a set rate of interest and payment terms which is agreed on at the start. If you don’t pay back the installments on time, you get charged interest. This borrowing and payment help establish a credit history. Having a good credit history can give you access to more borrowing options in the future.

How Many Scores Are There?

There are two major credit-scoring companies: FICO and VantageScore, that score within the 300 and 850 range. Each prepares different versions of scores that lenders, employers, and others can use to understand your credit habits. While they take into account the same factors, they weigh them differently to create a score. But, if you’ve used a free credit score service or viewed a free rating through your bank or a service, it’s most likely the VantageScore. But remember to check the same version each time you need to compare and watch your score, or your results will be skewed.

What Makes A Difference To Your Score?

Lenders want to know that you make your payments on time. This makes a big difference to your score. Other factors that count include using less than 30% of your credit card limit, how long you’ve enjoyed credit, the mix of installment loans and credit cards you have currently.

What Doesn’t Make A Dent In My Score?

You can check your credit score multiple times a year without affecting it at all. Even having multiple credit cards won’t hurt your score as long as you don’t overuse them and space out your applications.

How Is A Credit Score Different From A Credit Report?

A credit report is a detailed history of how you borrowed money, and you can get this report from each of the three major credit bureaus – TransUnion, Experian, and Equifax. Your credit reports include loan and credit card payment records, personal identification data, addresses and information from public records such as bankruptcies and foreclosures. What they don’t include is your credit score. You’re entitled to at least one free copy of each report annually, which you can also get by going to When it comes to your credit score, FICO and VantageScore use all the data from your reports to calculate your scores. If there are errors in your reports, these can hurt your scores significantly. Checking and taking up any discrepancies is a great idea before you need to file your taxes.