Knowing about credit can make your life easier and enable you to know where you stand with your finances. But along with credit comes a lot of terms and acronyms that can get confusing… credit score, credit report, CCR, CRB… what do they mean and what’s the difference?!
We’ve broken down six of the most common terms that you might see so you can walk away feeling a little smarter and a little more reassured about understanding your credit:
1. Credit Score
Also known as: Credit Rating – (if you’ve heard of the S&P national AAA credit rating, think of this like your own personal credit rating!)
Your credit score is a (usually three-digit) number that represents your overall credit health. Credit scores can range from 0 – 1000 in theory but generally most people fall in the range of 550 – 800 with above 800 being considered an excellent score.
It gives lenders a snapshot view of your credit worthiness and risk level. In other words, how likely are you to be a responsible credit user and pay back your loans on time?
Factors such as credit type, length of credit history, frequency and number of credit applications and amount of the credit applied for can all affect your credit score. With the introduction of comprehensive credit reporting, extra information about your repayment history and the number of credit accounts you have opened and closed can now affect your score. However, CCR is still in a transition phase and it will take some time for all this information to filter through (but we’ll read more about this in CCR).
There are many different credit scoring models out there and different credit reporting bodies (CRBs) can have different scales (e.g. some may have a scale of -200 to 1200). This means you can receive different scores from different places so make sure you know what your CRB’s scale is – Credit Savvy adheres to the Experian scale of 0 – 1000.
Knowing about and working to improve your credit score is important as in essence it will be used in addition to other factors to assess you if you need credit in the future, and if your score is high enough (and hence you appear less risky to lenders) you may be able to access better interest rates or deals.
So, now you know…
Credit may seem confusing, but it doesn’t have to be. Knowing and understanding these credit terms and how they can affect your financial standing is the first step to being in control of your credit reputation and making savvier informed financial decisions in the future.
Want to know your credit score? Check it for free any time you like with Credit Savvy.