what is a credit score usa what is a credit score and why is it important
In this video I have talked extensively about US credit score system, what is a credit score, how credit score works, who makes the credit score, some best practices to boost your credit score and how I maintained a perfect score of 850. This video would be very helpful in understanding the concept of credit score.
Chapter wise breakdown: -
00:00 – Intro
00:40 – What is Credit Score
02:46 – Credit Score Range
04:41 – How Credit Score is generated
06:10 – Who makes the Credit Score
07:36 – Best Practices
11:09 – Outro
If you liked my work then please don't forget to like, share and subscribe to my channel
#credit #creditcard #creditscore #usbanks #creditrepair #credit #finance #usfinance #irs #myfirstvlog #hindivlog #usahindivlog #nrilifeinusa #lifeinusa
In this video I have talked extensively about US credit score system, what is a credit score, how credit score works, who makes the credit score, some best practices to boost your credit score and how I maintained a perfect score of 850. This video would be very helpful in understanding the concept of credit score.
Chapter wise breakdown: -
00:00 – Intro
00:40 – What is Credit Score
02:46 – Credit Score Range
04:41 – How Credit Score is generated
06:10 – Who makes the Credit Score
07:36 – Best Practices
11:09 – Outro
If you liked my work then please don't forget to like, share and subscribe to my channel
#credit #creditcard #creditscore #usbanks #creditrepair #credit #finance #usfinance #irs #myfirstvlog #hindivlog #usahindivlog #nrilifeinusa #lifeinusa
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TechTranscript
00:00Imagine you are a mother and you have just left an abusive relationship, but you've got
00:06a good job and all you need to do is move you and your daughter into an apartment.
00:10You can pay the down payment.
00:12You can pay the last month's rent.
00:13You can see that I'm getting rarely paid and there's more than enough in the account.
00:19But they were like, if you don't have a credit score, we can't really look at you.
00:23She was categorically denied the ability to even apply for some of the apartment buildings.
00:29Ted Wary is a sociologist at Princeton, and that story came from a woman he interviewed
00:34in San Francisco back in 2017.
00:36Today, there are an estimated 45 million Americans who don't have a credit score, and that can
00:42make it really difficult to rent an apartment or get car insurance or even get a job.
00:47When credit scores were invented just a few decades ago, they were hailed as a way to democratize
00:52lending, play down human judgment, and let computers make most of the decisions.
00:57In the United States today, credit scores have become essential.
01:01Not having one can basically lock you out of daily life, and having a low score can make
01:06life difficult too.
01:08So how did we get here?
01:09What exactly are credit scores?
01:11And why do they keep so many people from accessing what they need?
01:15A credit score starts with a credit report, a record of some personal data points about
01:27us, like our zip code and employment history, plus our individual history of paying our debt
01:32obligations.
01:33Well, some of our debt obligations.
01:36See, only data supplied by big lending institutions like student loan servicers, mortgage lenders,
01:42credit card companies, and auto financers end up on our credit reports.
01:47We might be paying our cell phone bills and our rent each month, but cell phone carriers
01:51and landlords don't share that information with these guys, the credit reporting agencies.
01:56There are three, and each one has its own version of the credit history of more than 200 million
02:02people in the U.S.
02:04That data comes from institutions like credit card companies and student loan providers,
02:08who send information about our accounts to the credit reporting agencies.
02:12The type of loan, the balance, our payment history, and whether the loan has been sent
02:16to a collection agency.
02:18Then credit scoring companies like FICO and VantageScore take that information and feed
02:22it into an algorithm, which calculates a score between 300 and 850.
02:28The scoring companies are pulling from the same three credit reports.
02:32But the scores don't always come out the same.
02:35One company's algorithm might put more emphasis on the length of your credit history.
02:39The longer you've had access to credit, the higher your score.
02:43Another company might put slightly more emphasis on the mix of accounts.
02:46The more variety, the higher the score.
02:49Other factors include payment history.
02:51On-time payments mean higher scores.
02:53For loans like mortgages and student loans, lower account balances mean higher scores.
02:57And for credit card accounts, the percentage of my credit that I actually use.
03:01The lower that percentage, the better.
03:03Credit scoring companies make money the same way that credit reporting companies do.
03:07By selling your score to landlords, lenders, employers, and others willing to pay for it.
03:12Lenders use that information to determine whether to loan us money for a house, a car,
03:16or a college education.
03:18They also use that number to figure out how much we should pay for that loan.
03:22A lender looks at a low credit score, decides I'm a risky borrower, and charges me a higher
03:27interest rate than my neighbor with a higher score.
03:30And this is where things get tricky, for a couple of reasons.
03:33First, there's a lot of history baked into that credit score that doesn't show up on
03:39a credit report.
03:40And second, it's not just lenders who are looking at this information and making decisions
03:45that can affect my life.
03:47We're going to get into all that, but first, a quick note from the people at Secret.
03:52Funding loans can really make you sweat.
03:54Only one in three students understand the financial terms of their loans, and nearly
03:58half of federal student loan borrowers don't know how much they owe or who they owe it to.
04:03So how can borrowers go from confused to confident?
04:08It might sound obvious, but research shows a strong connection between financial literacy
04:12and successful student debt management.
04:14So let's build out a financial literacy toolkit.
04:18First thing to consider is the numbers.
04:20Find out how much you owe and what your interest rate is.
04:22Prioritize paying off the loans with the highest interest rate first.
04:26Second is to learn the terminology.
04:28This helps you understand what your options are.
04:30For example, auto-debit is when you set up automatic monthly payments, which may reduce
04:34your interest rate by 0.25%.
04:37Bonus tip.
04:38Call your lender and see if you can have your payments go directly towards your principal,
04:42which is the amount of money you borrowed so you can pay off your loans faster.
04:46Look into refinancing.
04:47That's combining loans into one with a new lender potentially also getting a lower interest
04:51rate.
04:52Find out if you qualify for student loan forgiveness.
04:54That way you can have some or all of your federal loans lifted.
04:58And the last thing in the toolkit, making the plan.
05:01Follow through on the approach that works for you.
05:03Maybe you qualify for the saved plan.
05:05Or maybe you can make even higher monthly payments to prevent more interest from accruing.
05:11Make a plan that fits within your financial goals.
05:14By understanding your student loans, you can take charge of them.
05:17Learn more at secret.com slash money moves.
05:21So, how do we get the credit system that we have today?
05:24Well, like a lot of systems in the US, we need to go back and look at the past to understand
05:29the present.
05:30For most of American history, creditworthiness was really a function of your personal character,
05:35whether the community and people who were interacting with you believed you to be a trustworthy,
05:40honest, dependable person.
05:42My name is Josh Lauer.
05:43I'm a professor of media studies at the University of New Hampshire in the Department of Communication.
05:48He's also the author of this book, A History of Credit in the United States.
05:54In this interpersonal credit system, a dressmaker in Boston might buy fabric from a general store
06:00on credit, which the storekeeper bought from a local textile mill on credit,
06:04who bought the cotton from his second cousin, a planter in Georgia, on credit.
06:08Those lines of credit were built on personal relationships.
06:12The thing is, there was a lot of labor happening behind the scenes to
06:16make those credit relationships possible.
06:19From the enslaved people whose labor created the planter's wealth,
06:22to the literal children working in the mill,
06:25to the unpaid or underpaid care work that made the store owner and dressmaker's businesses possible.
06:31Those people weren't part of this credit system,
06:33which has ramifications for the system we have today.
06:37We'll get more into that later on.
06:38But this whole interpersonal credit system, it really starts to break down after the Civil War.
06:43This is a period where you have people who are moving around.
06:46You have new transportation systems.
06:48And so you have people who want to have business relationships with people
06:52in more faraway places that they've never met.
06:55And they have no basis for understanding what their reputation is.
06:59And most importantly, whether or not they could be trusted to repay a debt that was given to them.
07:03In the 1870s, you start to see these.
07:06Handwritten credit reports.
07:08This one is for R.H. Macy, founder of Macy's Department Store.
07:12The business is a lucrative one.
07:13They pay everything in 10 and 30 days and never owe much.
07:17Reports like these were meant for other merchants or lenders,
07:21people who didn't know Macy but were considering whether to do business with him.
07:25Soon, books like this one let retailers share information about their customers with each other,
07:31like whether P.D. Jones of Brooklyn paid on time and should be offered credit.
07:36By the 1950s, those reports looked like this.
07:39Investigators working for the credit bureaus indicated race,
07:42using the dubious categories of the time, as well as character, habits, and morals.
07:47According to one training manual, investigators working for the credit bureaus were instructed
07:52to uncover whether a borrower was promiscuous, and if so, the extent of partners, as well as
07:58possible homosexuality, both of which were considered legitimate reasons to deny someone access to credit.
08:05There were many women who couldn't get credit cards or couldn't get opening a credit account because
08:09the accounts are always in a man's name. And there were minorities who could not get
08:13credit accounts because it was a racist credit economy.
08:16Banks will not lend money for a negro to purchase in other than what is termed
08:21settled areas. Those are areas where there is already a negro population.
08:26So these two things ultimately lead to the Equal Credit Opportunity Act,
08:30and that begins to regulate the kinds of information that can even be considered in credit decisions.
08:36But just because categories like race, gender, and sexuality are no longer officially included in
08:43credit reports, it doesn't mean that they can't show up in other ways. For example, we know that black
08:48workers are more likely than white workers to be let go during a recession. So that means that employment
08:55history can end up being a proxy for race that does show up on our credit reports.
09:00If you are more likely to be let go in a downturn and be let go earlier than your counterparts,
09:07then you're going to have an employment history that looks as if you're not as stable. If you are
09:13in a neighborhood whose homes have not appreciated at the same rate as people in other neighborhoods,
09:20that have nothing to do with the quality of the home or whether or not you've been paying on the
09:25home, suddenly you just don't look as if you were in as good a position as some others for taking out
09:32certain types of debt or being entrusted with certain kinds of credit.
09:36When my grandfather returned home from the Korean War,
09:39he got a cheap, federally backed mortgage that was not available to the black soldiers that he
09:45served with. And when he died and his kids sold the house, part of that money went to my dad,
09:52who used it to get a cheap mortgage and build a good credit history. And if you multiply that story
09:58by millions of families across the country, you can start to see how the impact of racist policies
10:05can reverberate for generations after the laws themselves have been repealed.
10:11You have an entire history of exclusion that gets excluded in the moment that a history of credit
10:19is being assessed. Today, more than half of black adults have a credit score below 650,
10:24which means they're usually charged significantly higher interest rates for a 30-year mortgage than
10:29someone with a higher score. And credit scores don't just lock people out of affordable mortgages.
10:34More than half of all employers in the U.S. say that they consult an applicant's credit history
10:39when hiring. So how can we fix the credit system to account for these disparities?
10:46Lawmakers in some cities and states have started by outlawing the use of credit scores to make
10:51decisions that aren't about lending money, like hiring and promotions or car insurance. People without a
10:57credit history or with a low score, they might still be engaging in credit-worthy activities,
11:02like taking part in an informal lending circle, where friends each contribute a set amount
11:07each month and then every person gets the full payout once. One option might be to empower local
11:13credit unions or non-profits to formalize these circles and report those payments to credit
11:18monitoring agencies, which could help participants build good credit histories. A few startups are even
11:23trying to bypass the traditional credit scoring system altogether. Instead, they're making loans based on
11:29rent payment histories and other data. If you want your kids to go to college and you don't come from
11:37wealth, then you're probably choosing to engage in a credit system and to engage in debt. If I don't
11:44have my credit card with me, it's going to be hard to check into a hotel. It's going to be hard to rent a car.
11:49Access to credit has really become a necessary key for participating in American life. And the system we have
11:56today reflects a history in which not everyone had access to that key. When I look to YouTube for
12:03solutions for this problem, a lot of the fixes are aimed at individuals. Tips and tricks for boosting
12:09your score and fixing your credit. And that stuff is helpful. But if we're going to level the playing field
12:16and give more people a fair shot, we're going to have to think bigger.
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