Student loans can affect your credit score
You learned in the last post how not paying
your student loans on time affects your credit.
You might not think a credit score is important,
but it is. This number decides whether or not
you can get a loan, and what interest rate
you get that loan at if you qualify for a loan.
If your credit score is too low, you may not qualify
for a mortgage or personal loan. Or you may end up
with a higher interest rate due to a lower credit score.
Even a small increase to the interest rate you are
paying on a loan, compounded over 10 years,
can add up to thousands of dollars of difference.
Your credit score is also called your FICO score,
which gets its name from the Fair Isaac Corporation.
This is the company which does the math to determine
your credit score. The score is based on a very
complicated algorithm, which is itself based upon
a variety of factors.
These factors include how much credit you have
available, how much you owe, what your payment
history has been like, the length of your credit
relationships… longer seems to be better.
(Keep that credit account open from when you were 18).
Any charge information is compared against every
other American who has a credit history of any form,
and everyone gets a credit rating.
This score tells lenders how likely you are to
pay back a loan.
The average American FICO score is 675.
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