So, why is your credit score report so important and what goes into computing the score? Suffice to say, I think it’s generally well-known that having a great credit score will secure you a low interest rates on loans, whether they’re student, auto, mortgage, business, etc. This post is for those who may not have the greatest of credit score, but want to improve it before considering consolidation/refinancing of their student loans or are hoping to secure a mortgage loan in the near future. Fret not, as you’re a new CRNA and you’ll be able to rehabilitate your score in no time since you’re now commanding a much higher salary now than you were as a bedside RN. Most businesses use the FICO score to determine whether they will lend you a loan and the rate at which they will charge you for the loan. Credit scores are determined based on a scale between 300-850. The higher, the better.
Payment History (35%)
This one is self-explanatory. Pay your bills on time and creditors won’t report delinquent payments to the credit agencies (of which the 3 biggest are Transunion, Equifax, and Experian). If you’ve ever made any late payments, it will show up on your credit report and will count against your score. If you have any kind of delinquencies or bankruptcies, that’s a big no-no and a major red flag. Unfortunately, only time will help heal those wounds.
Amounts Owed (30%)
Also known as the credit utilization ratio. Basically, this looks at how much available credit you have and how much of that credit you use. For example, if you have $10,000 in available credit and spend $1,000 in monthly expenses using that credit, your utilization rate is 10% ($1,000/$10,000 = 0.1 or 10%). Some personal finance sites recommend that you utilize less than 30% of your total available credit in order to avoid having any negative impact on your credit score. So, using the prior example, you should be charging less than $3,000 on your credit card on a monthly basis. The idea behind this is you’re demonstrating to creditors that you’re using credit responsibly. Just because you have a credit limit of $10,000 doesn’t mean you ought to max out that limit every time. Even if you do pay off the limit on a monthly basis, it makes creditors nervous when they an individual consistently maxing out their credit limit because you’re giving off the impression that you’re spending a lot of money and it makes a creditor nervous that one day you may not be able to pay back your debt.
Length of Credit History (15%)
Having a long history of payments helps your credit score. If you have any old credit cards that you rarely use, DO NOT cancel them. Keep them and use them from time to time in order to maintain the age of your credit history. If you cancel old accounts that are in good standing, all you’re doing is shortening the average age of your credit history and that could negatively affect your score.
New Credit (10%)
Be careful with how many credit cards you open in a certain period of time. The more you open, the greater the impact on your score. By opening several cards at once, you’re giving the impression to creditors that you plan to make a big purchase and that makes them nervous. So, if you’re going to open a card, be judicious about how many you plan on opening…..though I will later blog about credit card churning/travel hacking to demonstrate how you can actually open multiple credit cards at once and paradoxically, increase your credit score while also reaping certain benefits like traveling for free!
Types of Credit in Use (10%)
This one just looks at the different kinds of credit you’re utilizing (e.g., credit cards, store cards, mortgages, student loans, etc.).
Of the 5 factors that go into your credit score report, there are 3 in which you can directly control in order to improve your score: payment history, amounts owed, and new credit. So, make sure you pay your bills on time, use less than 30% of your total available credit and don’t open too many credit cards at once!