Pulse Check: Why Healthcare Professionals Should Monitor Their Credit Scores
/What are Credit Scores?
Let’s start by first reviewing what a credit score is. It is a number assigned to you by a credit reporting agency that helps creditors obtain a quick snapshot of your creditworthiness. Equifax, Experian, and Transunion are the three main reporting agencies in the United States and the credit score number can range from 300 to 850. (Source: Experian; link below)
When you apply for a credit card, a car loan, insurance, or a home mortgage; the lender is going to look at your credit report & score to help determine if you qualify and meet their standards to get approved. By proactively understanding and taking steps to get your credit score high, you should have a better chance of getting approved for credit in the future.
There are 5 different ratings assigned based on your credit score number.
Poor is considered 300-579
Fair is considered 580-669
Good is considered 670-669
Very Good is considered 740-799
Exceptional is considered 800-850
I would recommend striving to get your credit score to at least Good and if you want the best rates and approval chances then keep going until you get to Very Good or Exceptional.
Factors Contributing to Your Credit Score
Your credit score number is calculated based on six different categories: Payment History, Credit Utilization, Derogatory Marks, Length of Credit History, Total Number of Accounts, and New Credit Inquiries. Payment history, Credit card usage, and Derogatory marks have the highest impact on your credit score so those areas would be the highest priority to focus on. Credit Age has a medium impact on your overall credit score. Total accounts and Hard inquiries have the lowest impact.
Payment History: Your goal should be to have as many on-time payments as possible. The higher the better.
100% on-time payments for excellent
99% for good
98% for fair
97% and below needs work
Credit Utilization: Your goal should be to not use all of the credit that is available to you. The lower the percentage the better
0-9% of credit utilized for excellent
10-29% for good
30-49% for fair
50-100% needs work
Derogatory Marks: These include accounts in collection, bankruptcies, civil judgments, and tax liens. Your goal should be to have as few as possible.
0 is excellent
1 is fair
2+ needs work
Length of Credit History: This is the average age of all your open accounts. This goes up over time but you should be cognizant not to close older accounts that have been open for years or this will decrease.
9+ years is excellent
7-8 years is good
5-6 years is fair
0-4 years needs work
Total Number of Accounts: This is just based on the number of credit accounts you have overall. Having more accounts gives creditors more history and data to evaluate you on.
21+ is excellent
11-20 is fair
0-10 needs work
New Hard Credit Inquiries: If you keep applying for a bunch of different accounts this could be a red flag. Limiting the number of accounts you apply to can help keep your credit score high. This usually looks back over the past 2 years.
0 is excellent
1-2 is good
3-4 is fair
5+ needs work
Why Your Credit Score is Important
Some people like Dave Ramsey are totally against any debt while other people like Robert Kiyosaki say you should take out as much “good” debt as possible. Both of these are extremes and most people probably fall somewhere in the middle, using credit and some debt wisely but not going overboard.
If you are going to use debt during your lifetime then knowing what your credit score is and keeping it high should help you when you apply for a credit card or car loan, get insurance, or buy a home with a mortgage.
I use credit karma to monitor my credit score since they were one of the first companies to offer it free years ago. Nowadays there are a plethora of options to pick from. You are also able to check your full credit report for free once a year at https://www.annualcreditreport.com/index.action
If you don’t know what your credit score is currently, take some time this week to figure it out and see if there is anything you should be doing to improve it.
Shout out to Alex Kiel with Macatawa Bank’s Mortgage team for helping me co-write this blog post. She joined their team in 2016. Alex holds her Bachelor’s degree from Davenport University, where she double majored in Marketing and Finance, and played both basketball and golf. When she’s not fitting her customers with the perfect mortgage, Alex cheers on the Detroit Lions, who did quite well this year but unfortunately weren’t able to make it to the Superbowl…next year though! I have also had the privilege of competing with Alex in beach volleyball. 🏐😎
616.502.8044 akiel@macatawabank.com Website
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