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Understanding Credit Scores

for Black Families 


Do you understand your credit score? Perhaps you’ve heard of it but you have no idea what it is, or maybe you want to better understand it. Why do you need it? What is it for? Let’s take a look. 

What is a Credit Score?

Your credit score is a number that can range anywhere from 300 to 900 and is determined by the history of your credit. The lower the number, the worse your credit, the higher the number, the better your credit. The number itself is what lenders look at for a glimpse into your credit history. The lower or higher the number, lenders can know at a glance whether a person is high risk or minimum risk when it comes to lending them money.

The score is determined by how long you’ve had credit, how well you’ve made payments on your credit, what kinds of credit accounts you have, as well as the total amount you might owe on these accounts. The score is also affected if you’ve recently applied for new loans or credit cards.

The goal for your credit score is to be as high as possible. This involves making payments by the due date, paying off loans in a timely manner (and in full), and not maxing out your credit cards but keeping an open balance on them. 

Why Do You Need a Credit Score?

If you want to buy a car, a house, or any kind of property that requires payments to be made, you’ll need to have a good credit score. The best way to dip your toe into the world of credit is to open a small credit card and use it here and there while paying off the balance in full. Once you have a bit of a history with credit, you’re more likely to be approved for new cards, get a new loan, or purchase a house or car. 

Lenders need a way to see payments you’ve made in the past before they trust you with larger sums. If your score is low, you’ll likely be denied a line of credit. But if it is high, you’ll be accepted to open a new account.

 Who are the Reporting Agencies?

There are three big reporting agencies when it comes to knowing your credit score, Experian, TransUnion, and Equifax. If you want to know your score, report fraud, or report that your identity has been stolen, these are the three companies you’ll want to contact. They are the keepers of your score, and lenders will check your score from these Big Three.

VantageScore and FICO (also known as Fair Isaac and Company) compete with each other to calculate your credit score. Each one of these companies have proprietary programs that determine how to calculate them based on your payment history, late payments, and lines of credit. It doesn’t really matter which company calculates your score. One might be slightly higher or one slightly lower than the other, however, they’re never dramatically different from one to the other. Of the two, however, FICO is more well known. If you want to know your credit score, you can request it from one of these companies.

Take Care of Your Credit Score

While lenders might allow you to open a new line of credit or approve a loan, it’s always best to remember it is not free money. This money must be paid back and your payments are reported—even your late ones. Take care of your credit by paying on time and in full. When lenders can see you’re responsible with your money, they’re more likely to trust you with larger loans, such as a car payment or a mortgage.

To learn more about investing, closing the racial wealth gap, and growing generational wealth for Black and brown families, please visit Financial Joy School and become a part of our financial family.


Author FJS

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