Navigating the world of credit scores and their significance can be overwhelming, but gaining a solid understanding of how they work is a crucial step toward financial success. Imagine credit scores as your financial reputation – they determine your eligibility for loans, credit cards, apartment rentals, and insurance rates.
The system might not always seem fair, and that's why OCHO is here to help.
Our CEO Jaime Gutierrez on our mission: “OCHO was founded by Lulu, Akshay and Jaime to help working families, immigrants, and anyone who doesn’t check the “traditional” box in America to build financial security, family wealth, and the dignity and peace that comes with knowing your family is OK.”
We’ve gathered together this guide to break down the complexities of credit scores into simple terms, covering everything from what a credit score is to how you can improve it.
A credit score is a three-digit number that is an evaluation of your financial history. Credit lenders will check your score to decide if they will lend to you and at what rate.
It shows a credit lender how reliable someone is with their money and how they manage their finances.
Just like you have a reputation among your friends for being dependable, responsible, and trustworthy, your credit score reflects your financial reliability in the eyes of lenders.
In the United States, credit scores typically range from 300 to 850. The higher your score is, the better your financial reputation.
When you apply to OCHO, we will give you your credit score for free! Otherwise, you can check these websites for a free report:
Will My Credit Score Go Down if I Check It?
No, checking your credit score will not cause it to go down. When you check your credit score, it's considered a "soft inquiry," which doesn't impact your score. These types of inquiries aren't visible to lenders when they assess your credit report.
Only "hard inquiries" lenders make when you apply for credit might have a small effect on your score. So, feel free to monitor your credit score without worrying about it decreasing.
Why are Credit Scores So Important?
Credit scores are crucial because they majorly affect your financial life. Your credit score matters for a variety of reasons. Lenders use your credit score to decide your credit risk when applying for a loan, whether for a mortgage, car, or personal expenses.
What Does Credit Risk Mean?
Credit risk means how likely you will pay the lender back and on time. Lenders assess your credit score to determine how risky it would be to lend you money.
A higher credit score indicates lower credit risk, meaning you're more likely to repay the loan on time. Conversely, a lower credit score suggests higher credit risk, which could make lenders more cautious about approving your loan application.
They provide a quick snapshot of how responsibly you manage your finances. Landlords, employers, and insurance companies may also check your credit score to assess your financial reliability.
If you don't have a credit history, your credit risk refers to the uncertainty lenders face when considering whether to lend you money. Since you still need to establish a track record of borrowing and repaying debts, lenders need more information to assess how likely you are to repay loans.
As a result, a lender may consider you a higher credit risk simply because there's a lack of data to determine your financial behavior. No credit history can make qualifying for loans or credit cards challenging, and you might need to explore alternative ways to build credit and demonstrate your credit dependability.
At OCHO, we know all about these difficulties and are here to help! One way you can build your credit score is with OCHO auto insurance. We not only do our best to get you the cheapest quote possible by working with as many auto insurance carriers as possible, we take the risk for you! How do we do that? Our CEO Jaime Gutierrez is here to explain:
“OCHO will report each of your payments to the credit bureaus. So, if you buy your insurance with OCHO and you pay on-time, you will have one “tradeline” on your credit report that will help you establish or improve your score. OCHO is just one “tradeline”, so if you have credit cards or other loans, you will want to pay those on time.
If you do not buy your insurance with OCHO, apply for a secure credit card at a bank and be sure to make all of your payments on time. This will help increase your score also. For those who don’t have a credit score, you need 6 months of payments on any tradeline, such as a credit card, loan or OCHO’s down-payment financing, in order to start building a credit score.”
And, because we believe in you, up to 50% of applicants can get zero down on their insurance, and those who don't receive zero down have their down payments significantly reduced. You can apply here.
Several factors contribute to your credit score, each with a varying degree of impact:
Payment History (35%): Timely payments on credit accounts show your responsibility.
Amount Owed (30%): Managing a reasonable debt without maxing out your credit cards is essential.
Length of Credit History (15%): A longer history indicates reliability.
Credit Mix (10%): Handling different types of credit, such as loans and credit cards, demonstrates versatility.
New Credit (10%): Opening several new accounts can be considered risky behavior.
A credit score normally ranges from 300 to 850. This range is used by most commonly known credit scoring models, such as FICO and VantageScore, to evaluate an individual's credit history.
A credit score within the range of 670 to 739 is considered good. This range is typically associated with being more likely to be approved for loans, credit cards, and other forms of credit and offered more favorable interest rates and terms.
However, remember that the specific definition of a "good" credit score can vary slightly depending on the credit scoring model used and the lender's criteria.
Different lenders might have their own thresholds for a good credit score. Still, a score in the 670 to 739 range is considered favorable for accessing credit opportunities.
Boosting your credit score is achievable by adopting responsible financial habits.
Since paying on time has the most significant impact on your credit score, let's delve into why paying on time matters so much:
This part is super important! Paying your bills on time demonstrates your reliability and commitment to fulfilling your financial obligations. Lenders and creditors assess your payment history to determine the likelihood of you repaying borrowed money. A consistent history of on-time payments indicates to them that you're a responsible borrower who can be trusted with credit.
Your payment history is one of the most heavily weighted factors on your credit score, contributing around 35% to your FICO credit score. When you consistently pay your bills by the due date, your credit score receives a positive boost. Conversely, late payments can lead to a lower credit score and potential damage to your credit score.
Sticking to due dates saves you from late fees and penalties. Those charges can snowball, making your finances harder to handle. Don't let them rain on your parade of financial success.
When you pay on time, the credit door stays open. Whether it's a mortgage, credit card, or a shiny new car, lenders check your payment history. Your good history means you're a safe bet for loans at agreeable terms.
On-time payments build trust with lenders. It's like a relationship built on promises kept. Over time, this trust gets you better deals – higher credit limits, lower interest rates, and a seat at the low-risk borrower table.
Timely payments are the stepping stones to your bigger dreams. Whether it's a house, a car, or an education, a strong credit history opens doors. Lenders love to back someone with a track record of responsible payments.
Consistently paying on time reflects good financial habits, demonstrating effective money management beyond credit. It's a smart move for a solid credit score, financial stability, and long-term goals. Honoring commitments shows responsibility and secures a better financial future.
We understand how hard it can be to make payments in time, especially in a world where living paycheck to paycheck is a reality for most Americans. Payment flexibility is crucial. However, the auto insurance industry typically allows only a 10-day grace period for catching up on payments, meeting the minimum state requirements.
At OCHO, things work differently. Our customers usually want to keep their coverage and avoid cancellation, often needing a little more time for their next paycheck or other funds to come through. Our unique approach rewards punctual payments with increasing flexibility.
For the first payment, arranging a future debit card payment adds 2 days to your grace period. And if you make that first payment, we extend it by 4 more days. We're even exploring more ways to boost flexibility for consistent payers.
OCHO is the only company in auto insurance offering this flexibility for our customers!
Contact us to know more about our program. Your financial well-being matters to us.
Your credit score typically updates regularly, usually once a month. It can be more frequent if you have many financial products. Each time any one of your creditors sends information to any of the three main credit bureaus — Experian, Equifax, and TransUnion — your score may refresh.
If you've been consistently paying your bills on time and managing your credit responsibly, the positive changes in your credit behavior should reflect in your credit score during these updates.
It's important to note that the exact timing of updates can vary based on when your creditors report your payment information to the credit bureaus. If you make timely payments, you can expect to see improvements in your credit score over time as the positive news is reported and incorporated into your credit history. If you've recently paid off a debt, seeing any changes in your credit scores may take over a month.
Your credit score can change for various reasons, often fluctuating throughout the month as new updates are added to your credit reports. Some changes are clear, like a late payment or a new collection account, which typically lowers your score. Conversely, paying off a significant credit card balance can boost your score.
However, there are cases where actions lead to unexpected effects on credit scores. For instance, paying off a loan, a responsible move, might paradoxically lower your score. This could be because the paid-off loan was your only active installment account or the sole loan with a low balance, leaving you with a skewed credit mix.
A helpful tip is using a credit card for a small monthly subscription and paying the balance in full each time to maintain account activity and an on-time payment history.
Remember, credit scoring models use complex calculations to determine your score.
A single late payment can significantly lower the score of someone with a pristine record, signaling behavior change and credit risk. On the other hand, someone frequently missing payments might experience a smaller score drop from a new late fee, as their likelihood of missing payments is already considered in their score.
Credit scores may seem complex, but they measure your financial trustworthiness. A good credit score will open doors to better loan terms, lower interest rates, and economic opportunities.
By understanding the factors influencing your credit score and adopting responsible financial habits, you can actively work towards improving your credit health and securing a brighter financial future.
So, whether you're planning to buy a home, lease a car, or manage your financial well-being, your credit score will be there as a guide to help you make the most informed decisions.
And remember, OCHO is always here to help. We believe in you. Start building your future with us today by applying for credit-building auto insurance. Every positive step counts!