Amanda Polnicki, Author at Common Trust FCU

Risk or Responsible: Your Quick Guide to Credit Reports & Scores

 In the tumultuous world of finances, different numbers and scores can start to blend together into one confusing blob. Thankfully, there is a bounty of helpful guides and articles to help you differentiate between contrasting numbers and their meanings. In this week’s blog, we’ll discuss the main differences between Credit Reports and Credit Scores—and how to maintain them. 

While the words “Credit Report” and “Credit Score” are sometimes used interchangeably, there is one main difference between the two.

Your Credit Score illustrates how much of a credit risk you are to lenders. It is a numerical value most commonly scored between the ranges of 300 and 850 (we’ll delve deeper into what constitutes a “great” score a little later).

Your Credit Report is a record of your credit and lending history. This includes payments, debts, number and types of accounts you’ve had, and so much more.

Why Should I Maintain Them?

If the chance to be labeled “excellent” on your credit score isn’t incentive enough, it’s important to note that having a score above 700 usually leads to lower interest rates and more member perks. Having a good credit score isn’t just a financial title. It can help save you hundreds of thousands of dollars over your lifetime. You won’t be hit with high-interest rates and can negotiate loan terms more freely. Plus, having a great credit score can instantly make you eligible for bigger loans and higher credit limits, ensuring that you never have to cough up the full payment amount for any big purchases. You’ll automatically get better rates when signing up for things like insurance, and approval for apartments or leases will be a breeze.

Do I Need to Look at Both?

The short answer—yes! It’s important to stay up-to-date on both your credit report and credit score. Doing so will allow you to know how lenders will assess your financial responsibility before approving or denying things like loan requests or opening a new credit card. Sites and apps like Credit Karma provide free access to your credit score and will send you copies of your credit report upon request. You can check as often as you need, or want, and it won’t negatively impact your score. Conversely, if you are trying to raise your credit score, monitoring your credit report will allow you to see what may be impacting it and how to take preventative measures in the future. 

It is important to note that checking both your credit score and credit report regularly can help prevent fraud. Always be sure to analyze for anything that looks faulty or incorrect, and if anything seems out of place always reach out for further information. Your credit score is one of the most important things you have in your possession and can make or break anything from purchasing a pair of boots to purchasing your first home. 

What Is Used to Calculate Your Credit Score?

This aspect of credit is where both credit scores and credit reports cross paths. There are a few main aspects of your credit report that impact how your numerical credit score is calculated. Although it is important to note that each credit-reporting system utilizes their own unique formula to calculate your score, generally it is made up of the following:

  1. Payment history accounts for 35% of your credit score. If you have not historically made your credit card or loan payments on time, your score will naturally go down.

    Tip: To keep your score in tip-top shape, you should make a point to schedule all payments before the due date. Doing so will also save you money – say good-bye to accumulating more and more debt via hefty interest rates!
  2. How much you owe on your accounts makes up 30% of your credit score. Especially if you don’t make payments on time, you may see a dip if you continuously rack up debt on your open accounts. Do you really need those sparkly heels?

    Tip: Try to avoid accumulating too much debt on credit cards or loans at any time.
  3. Length of credit history accounts for 15% of your credit score. The longer, the better. This portion illustrates that you have been financially responsible for longer, and are more-likely-than-not going to continue making payments on time and are thus less of a risk.

    Tip: Even if you haven’t used your high school credit card in years, keeping it open can help lengthen your credit history. 
  4. Opening new cards is a significant factor in the equation. In fact, 10% of your score is based on new credit, and how many accounts you have opened recently.

    Tip: even if a $100 best buy gift card or low APR is at stake, don’t open too many new credit cards at once. Not only are they hard inquiries, but doing so categorizes you as a credit risk and can quickly lower your score. 
  5. Multiple lines of credit and being able to maintain them can positively impact your score by illustrating that you are financially responsible. 10% of your credit score is based on existing lines of credit. Do you have a variety of accounts? Do you have multiple accounts?

    Tip: explore ways to maintain multiple lines of credit (without opening a bunch of credit cards at once). Successfully managing multiple accountscar loans, credit cards, school loans—can yield major positive dividends for your score.

Keeping the above factors in good standing is crucial to maintaining your credit score. Don’t fret if you have an off-month, though. One missed payment won’t completely diminish your score. And if you happen to have a few mishaps, you’ll be relieved to know that they do eventually fall off your report. Just keep making on-time payments and maintaining your credit lines—eventually, your score will fully recuperate!

What’s a “Good” Score?

Your FICO® credit score falls into five general categories:

  • BAD: 300 – 560
  • POOR: 560 – 650
  • FAIR: 650 – 700
  • GOOD: 700 – 750
  • EXCELLENT: 750 – 850

Not instantly listed as “Excellent” or even “Good”? Not to worry.  Over time, as long as you keep up with your payments, your score is sure to pick up.

Got Credit Q’s? Looking to open a new line of credit? Have questions about your credit score, report, or just need some quick credit advice?  We’re here to help. At Common Trust, we thrive on helping our members successfully manage their credit in every way, from HELOCs to car loans to credit cards and everything in between. Give us a call today or shoot us a message and we’d be happy to chat. We look forward to hearing from you!

Apply for Our Board!

Common Trust Federal Credit Union is seeking new leaders from the membership for our Board of Directors!

Our Board of Directors is democratically elected by the credit union and is responsible for establishing loan and savings policies and directing all affairs of the credit union. Serving on our board of directors is a great opportunity to help guide the credit union and be a voice for the membership.

The seats open are as follows:

  • Four (4) seats open for re-election
  • Three (3) seats open for a term of 3 years
  • One (1) seat open for a term of 1 year

If you or someone you know would make a good fit, visit our office to pick up the application or click the link below to download. Completed applications will be accepted from now until December 15th, 2019.

BOD Intent Form for Nomination 

BOD Certification Form

When to Use a Credit Card vs. Debit Card

Most people have at least one debit card and one credit card in their wallet. Although both cards can be used in many of the same places, it can be difficult to determine which card is best for each transaction. When you use your credit card, you may earn points, but your debit card won’t charge you interest. Which do you choose? Here are some tips to help you decide.

3 Major Differences Between Credit & Debit Cards

Where the Money Comes From
A debit card is backed by the money in your checking account. You can only spend what you already have. When you use your debit card it’s like using cash because you must have funds available in your account or the transaction will not go through. With a credit card, you have a pre-approved spending limit and you can use the card repeatedly until you reach that limit, regardless of how much money is in your bank account. Of course, you will have to pay that money back eventually. It’s like you’re making a promise or taking out a small loan every time you use a credit card.

Proof of Payment
Depending on the amount of the purchase, you may be required to provide a PIN or signature to complete the transaction. Typically, a PIN is used for a debit card. This can be set up by your bank or you may have access to change it anytime you want. It’s important to remember this number and never write it down. If someone else finds it, they can use your card and drain your bank account. With a credit card, you will not have a PIN but instead, you’ll be required to provide a signature. This signature states that you will pay the bill when it’s due.

Limits of the Card
Both types of cards have limits but in different ways. Since a debit card takes money out of your checking account, you can only spend as much as you already have. If you overspend, it may pull money from your savings account and you could be charged a fee. This is called an overdraft. Most banks will give you the choice to allow an overdraft to happen with a fee, or to cancel the transaction before it goes through and avoid the fee. Think about your own spending habits and decide what’s best for you. With a credit card, you will be charged interest for every month you carry a balance. This is where most people tend to get in trouble. They charge more than they can afford to pay off in a single month, carry a balance, and then owe more due to the interest.

When to Use Which Card

When deciding which card to use, consider your personal spending habits, the pros, and cons of each card, and the purchase in question.

A debit card is the ideal method of payment for daily purchases or small transactions. Groceries, gas, and movie tickets are all easily paid for with a debit card and are items you likely would have otherwise paid cash for. You don’t have to worry about paying it back or accruing interest, and this is also a good choice if you’re likely to get into credit card debt that you’ll have a hard time paying back.

Online purchases are more easily refunded or refuted if on a credit card. Car rental and hotel reservations may come with additional costs when you return the vehicle or check out. Many credit cards come with reward options such as cashback, earning points towards flights, and more. It may be more beneficial to purchase gas and groceries on your credit card if you earn extra points for them that you can save up for a rainy day.

Credit & Debit Cards from Common Trust

Think you’re ready for a new credit or debit card? At Common Trust, we offer both low-interest credit cards and hassle-free debit cards for our customers, as well as great tips for learning how to make the most of each card. If you’d like to learn more about these offerings, please don’t hesitate to contact us today by calling 781-933-2600 or visiting commontrust.org. We look forward to helping you achieve financial happiness.

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