Episode 42: What Works Wednesday: Breaking Down Credit and Credit Scores

Welcome to this weeks “What Works Wednesday” episode as Leland tackles credit scores—essential for financial success. Join us as we decode their significance, unravel how they're calculated, and empower you to take control of your financial future. Tune in to What Works Wednesday and embark on a journey towards financial empowerment.

PeaceLink Financial Planning LLC

Transcript:

Welcome back to another episode of What Works Wednesday. Today we're going to talk about credit scores. This is a huge topic, not just among self -employed professionals, but just in personal finance in general. And it's a topic that I get asked about constantly. If I do this, how's it going to affect my credit? You know, what is my credit score? How do I improve it? How do I get approved for certain loans and interest rates? All of that goes back to our credit score. And it's important for business owners because oftentimes we need

certain types of lines of credit loans to be able to cash flow our businesses, especially in the early days. So let's talk about it. Let's talk about how it's calculated, keys to success, and how to think about credit, really, because we have a huge credit crisis in the US with people just being swamped in debts and loans and bad credit scores, which then make it really hard to continue to move forward and progress in your personal life and in your financial life.

So what is a credit score? A credit score is a score given to each person that would not be defined this way, but I would say it's the, how trustworthy are you if I were to give you a loan or a line of credit score? So lenders, credit card companies, they're gonna say, all right, you want to get, fill in the blank, approved for a credit card, approved for a mortgage. Well,

That means we're going to have to give you money and how safe is that money going to be in your hands? Are you going to pay it off on time? You know, what's your history of credit in the past? How reliable are you? And that's going to educate if you get approved for the loan and what some of the stipulations would be interest rates, total credit line amount, things like that. So when it comes to lending money,

you, we need to know how credible you are. And that is what a credit score essentially does for lenders is it gives them a number that says, okay, we can get an idea of what risk we're going to take on by giving you this loan. And if it's going to be more risk, maybe we charge a higher interest rate because we're taking more risk to give it to you, or we don't approve you for as much, or we don't approve you at all. So how is a credit score calculated? What do you need to be thinking about in regards to that? And there's five areas.

five areas include your payment history, do you pay on time, do you consistently pay on time, are you consistently late, if so, typically how often are you late, and by how far back are you late, the amount owed, so hey you have all these loans, you have all these credit cards, are they all maxed out, do you owe a ton of money,