It’s All About Your Credit Score

Dec 20, 2015

Your credit score reflects your “financial risk” and affects how you will be priced on different credit products. A higher credit score means more savings for you.

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A higher credit score means more savings for you

For example, you can save a lot of money by getting the lowest APR (i.e. interest rate + lending fees) possible when you get a loan for your next big purchase.

The key to getting a low interest rate is to build good credit. Building good credit is reliant on your credit score. Assuming you want to get the best terms possible on your financial products, living arrangements or car financing, you better know what affects your credit score and how it works.

The key to getting a low interest rate is to build good credit. Building good credit is reliant on your credit score

First, what is a credit score?

Your credit score is a number generated by a mathematical model that predicts your credit risk – the likelihood of whether or not you’ll pay back a loan.
The mathematical model uses information from how you have used credit in the past to calculate the score. If you are deemed more likely to repay your debt, then you will get more favorable terms (i.e. a lower interest rate).

You’ve probably heard this term by now: your FICO score.

Your FICO score is a credit score. It’s the most common credit score out there. FICO scores range from 300 to 850. The higher the FICO score, the lower the predicted risk of giving you a loan. All in all, you want a high credit score and thus a high FICO score. On average, most people score between 660 to 800.

How is my FICO credit score determined?

It all comes down to 5 areas. You’ll notice they’re all based on your credit history (aka your past).

  • Payment history
  • How much you borrowed
  • Length of credit history
  • Diversity of credit types
  • If you’re currently seeking credit
The two most common reasons for having a low FICO score are not paying back debts in a timely manner or, conversely, not taking on debt in the past. Counter intuitive, right?

As we mentioned back in our previous post, a great resource to help you with your credit score is Credit Karma. Credit Karma will tell you how the three major credit bureaus are rating your credit. They also show you any negative or derogatory elements on your credit report.

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So how can you increase your credit score?

It’s a bit more complicated than you might think. For now, just know that your credit score can increase. Bad payment behavior only stays on file for 7 years. The credit score companies understand that we’re human, and that humans sometimes make mistakes. Your credit score can easily go up from where it stands right now.

If you don’t have much of a credit history, you need to start opening up a credit account or two. For instance, getting your first credit card can be a great strategy. It helps to have multiple diverse credit lines. BUT only borrow what you need and only what you can pay back quickly. Over time your credit will improve, then you can borrow more with lower interest rates.

One quick way to improve your credit score is by “borrowing” your parent’s credit score. The traditional term for this is “co-signing.” At Backed, we call this a Backer. This is someone who acts as a guarantor that you will repay your loan. If you are establishing the credit and making the payments, it is your credit score that will see direct improvement. Visit Backed ( to see how we can help you establish or improve your credit score.

Try it out

You have the power to increase your credit score, so figure out where it stands now, for free!
If you need a loan for a big purchase (like your first deposit on an apartment) now, there are still answers. Check out Backed to see how you can co-sign with your parents while still increasing your own credit score.

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