HOW CREDIT WORKS | Summary and Q&A

TL;DR

FICO is a credit company that uses the latest Vantage scoring system to determine credit scores based on factors like utilization and payment history.

Key Insights

• 💳 FICO uses the Vantage scoring system, which considers utilization, payment history, new credit, and amount utilized to determine credit scores.
• 💯 Keeping utilization under 30% is essential for maintaining a high credit score.
• 🏦 Applying for new credit can be challenging if other banks see that you were denied by another bank.
• 💝 Derogatory items, such as late payments, collections, and charge-offs, can have a significant impact on a credit report.
• 👽 Tax liens may not be reported on credit reports but can still affect mortgage applications.
• 💳 Credit card judgments can be resolved through agreements with the creditor or by making a payment plan.
• 🥺 Debt consolidation may not be the best solution, as it can lead to paying off the entire debt again.

Transcript

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Questions & Answers

Q: What are the key factors that determine a credit score?

One major factor is utilization, which should be kept under 30%. Additionally, payment history, new credit, and the amount of credit utilized play a significant role in determining credit scores.

Q: Why shouldn't you pay off your credit card in full every month to raise your score?

If your score is around 650 and you're trying to build it up, paying off your card in full every month won't allow the bank to make any interest off of you, which affects your credit report. It's more advisable to pay off in full once your score is 750 or higher.

Q: What are some common derogatory items that can appear on a credit report?

Late payments, collections, charge-offs, tax liens, and credit card judgments are examples of derogatory items that can negatively impact a credit report.

Q: How can individuals resolve debts and improve their credit situations?

It's crucial to face the problem and communicate with the creditors. They are often willing to work with you to find a solution, such as setting up a payment plan or negotiating a reduced amount.

Summary & Key Takeaways

• FICO uses the Vantage scoring system to create credit scores, considering factors such as utilization, payment history, and new credit.

• Keeping utilization under 30% is important to maintain a high credit score, as going over this threshold can cause a significant drop.

• Applying for new credit can be challenging if other banks see that you were denied by another bank, as they may be hesitant to extend credit to you.