Credit scores are one of life’s great mysteries. The short explanation is that a credit score is a number used to measure someone’s creditworthiness. But that only raises more questions about how they calculate the score, what affects it, how to improve it, and who sees it.

So, what exactly does creditworthiness mean? It refers to whether someone is a credit risk to lenders, credit card companies, or other firms (such as property management companies that a tenant would be paying rent to). The factors used to determine creditworthiness are also the same ones used to calculate credit score. Past credit history is used to estimate how well someone has handled their loans and debts in the past.

Here are some of the things they’ll look at:

Is there an established credit history through credit cards or loans? (Many creditors don’t want to be the “first” lender because the borrower has no track record).
- Payment history — Have there been any missed payments or tardiness with payments?
Is the borrower apt to default on their debt?
How many credit cards or loans do they currently have?
- How long have they had these?
What is the total credit limit (e.g. how much can they charge on each credit card – even if they never reach that limit)?
Are there any regular payments such as child support or alimony?

Credit scores are also sometimes called FICO scores — for Fair, Isaac and Company who originated the reporting service in 1989. There are three main credit bureaus (Experian, Equifax, and TransUnion) and each calculates a score for borrowers based on criteria such as those listed above.

Knowing very little about credit scores, it goes without saying that the higher the score, the better the credit. And the better the credit, the more apt the borrower is to get approval for a loan or credit card. In the case of debts such as a mortgage or car loan, a higher score will also result in a lower interest rate.

Credit scores range from 350 to 850. Lenders may set their own standards as to what number they’ll accept, but in general 710 is thought to be a good credit score, with anything over 740 being considered excellent. People with scores of 600 or lower are generally considered poor risks.

Here are some ways to improving the borrower’s credit score:

Make monthly payment on any long-term loan – and do it on time! If the borrower is late by a day or two, (this is unusual for the borrower) then they should call the lender and ask if they’ll “excuse” this tardiness and not report it.
Pay credit card bills on time. Pay off the balance if possible, but if not, be sure to make the minimum payment by the due date.
Do not close credit cards that aren’t in use. (Although it’s okay to cut up the cards if not in use, to prevent using them). The longevity of a credit card is factored into the borrower’s credit history. The longer, the better. By the same token, don’t open new accounts to get free gifts or airline tickets and then close them.
Keep credit card balances low. Try to pay as much as possible each month so interest rates don’t mount up. And don’t charge any more on that card unless absolutely necessary.
Avoid making small charges on a lot of cards. If there is $25 on one card and $40 on another, the credit reporting companies will see this as a lot of open balances. Instead, choose one or two cards to use for all charges. Just don’t close the other ones!

Discovery Village at Deerwood offers a variety of senior living programs to keep seniors healthy and active. Learn about our senior living options and amenities today when you contact us at 904.667.3500.