00:00Imagine applying for a loan, a credit card, or even an apartment, and instead of a long interview, the decision comes down to just one number.
00:09A number that silently follows you through almost every financial decision you make in the United States.
00:15That number is your credit score.
00:17Most people hear about it, worry about it, and even fear it, but very few truly understand what it is or how it works.
00:24Today, we're going to change that.
00:26In this video, we'll explain what a credit score really is, why it matters so much in the USA, how it's calculated, and how you can use it to build a stronger financial future, simply and clearly, without confusing jargon.
00:40At its core, a credit score is a three-digit number that represents how trustworthy you are as a borrower.
00:46In simple terms, it tells lenders how likely you are to repay money that you borrow.
00:51The higher your score, the more confident lenders feel about giving you credit.
00:54In the United States, credit scores usually range from 300 to 850.
01:00A score closer to 850 means you are re-seen as a low-risk borrower, while a score closer to 300 signals high risk.
01:08This single number can decide whether you get approved or denied, and how much that approval will cost you.
01:15So, who actually creates this score?
01:17In the U.S., credit scores are calculated using information from your credit report, which is maintained by three major credit bureaus, Equifax, Experian, and TransUnion.
01:28These bureaus collect data about your borrowing and repayment behavior, things like credit cards, loans, payment history, and account balances.
01:36That information is then fed into scoring models, the most common being the FECO score.
01:42While there are different scoring systems, FICO is the one most banks, lenders, and credit card companies rely on.
01:48Now, let's break down what actually goes into your credit score, because this is where most people get confused.
01:54Your score isn't random.
01:55It's calculated using five main factors, each with a different level of importance.
02:01The most important factor, making up about 35% of your score, is payment history.
02:07This simply means, do you pay your bills on time?
02:10Late payments, missed payments, and accounts sent to collections can severely damage your score.
02:16On the other hand, consistently paying on time builds trust and strengthens your credit profile.
02:21The second biggest factor is credit utilization, which accounts for about 30% of your score.
02:28Credit utilization refers to how much of your available credit you're using.
02:32For example, if you have a credit card with a $10,000 limit, and you're using $3,000, your utilization is 30%.
02:41In the U.S., lenders generally like to see utilization below 30%, and under 10% is even better.
02:48High utilization signals financial stress, even if you're making payments on time.
02:54The third factor is the length of your credit history, which makes up about 15% of your score.
03:00This looks at how long you've been using credit.
03:02Older accounts help your score because they show a longer track record of behavior.
03:07This is why closing old credit cards can sometimes hurt your score.
03:10It shortens your credit history.
03:12In the U.S., patience is key when it comes to building strong credit.
03:17Time matters.
03:18Next comes credit mix, which accounts for around 10% of your score.
03:23Credit mix refers to the different types of credit you have, such as credit cards, auto loans, student loans, or mortgages.
03:31Having a healthy mix shows that you can handle different types of debt responsibly.
03:34However, this factor is less important than payment history and utilization, so you should never take on unnecessary debt just to improve your mix.
03:44The final factor is new credit, also about 10%.
03:48This includes how often you apply for new credit and how many new accounts you open.
03:53Every time you apply for credit, a hard inquiry is added to your report, which can slightly lower your score.
03:59Too many applications in a short period can make you look desperate for credit, which raises red flags for lenders.
04:05Now that we understand how credit scores are calculated, let's talk about why they matter so much in the United States.
04:12Your credit score affects far more than just loans and credit cards.
04:15It can determine whether you're approved for an apartment, how much you pay for car insurance, and even whether you need a security deposit for utilities.
04:23In some cases, employers may check credit reports as part of background checks.
04:27In short, your credit score shapes your financial opportunities.
04:32A high credit score can save you tens of thousands of dollars over your lifetime.
04:36For example, someone with excellent credit might qualify for a mortgage with a much lower interest rate than someone with poor credit.
04:44That lower rate means smaller monthly payments and less interest paid over time.
04:48On the flip side, a low credit score doesn't just mean denial.
04:52It often means higher costs, stricter terms, and fewer options.
04:56So, what is considered a good credit score in the USA?
05:00Generally speaking, scores are categorized like this.
05:03300, 579 is considered poor.
05:06580, 669 is fair.
05:09670, 739 is good.
05:12740, 799 is very good.
05:16And 800, 850 is excellent.
05:18Most lenders prefer borrowers with scores above 670, but even moving from fair to good can make a noticeable difference in approvals and interest rates.
05:28One common myth is that you need to be rich to have a good credit score.
05:32That's not true.
05:34Credit scores are not about how much money you make.
05:36They're about how responsibly you manage credit.
05:38Someone with a modest income but strong financial habits can have a better score than someone who earns a lot but mismanages debt.
05:46Another myth is that checking your credit score hurts it.
05:49In reality, checking your own score is considered a soft inquiry and has no negative impact at all.
05:55If you're new to credit or rebuilding your score, the process may feel overwhelming.
06:00But it doesn't have to be.
06:02Start with the basics.
06:03Pay every bill on time.
06:05Keep credit card balances low.
06:07Avoid unnecessary applications.
06:09And regularly check your credit report for errors.
06:11In the U.S., you've re-entitled to a free credit report from each bureau every year through the official site annual credit report.
06:19CommNAS reviewing your report helps you catch mistakes before they cause serious damage.
06:23Think of your credit score as a financial reputation.
06:27It's built slowly, damaged quickly, and repaired with consistency.
06:31Every payment you make on time is a small vote of confidence in your favor.
06:35Every smart decision adds up.
06:37You don't need to be perfect.
06:39You just need to be consistent.
06:41In the end, understanding your credit score puts you back in control.
06:45Instead of fearing that three-digit number, you can use it as a tool to unlock better opportunities,
06:50lower costs, and greater financial freedom.
06:53Knowledge is power, especially when it comes to money.
06:57If you understand how the system works, you can make it work for you.
07:01If this video helped you understand credit scores more clearly, make sure to like it, subscribe to the channel, and share your thoughts in the comments.
07:08In the next videos, we'll dive deeper into how to build credit fast, common mistakes to avoid, and smart strategies for managing money in the USA.
07:16We'll see you next time.
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