I thought this site was about retirement!  Why is there a page about credit?

On the “How much do I need?” page, we talked about the importance of starting your retirement fund early to take advantage of compound interest.  Unfortunately, that works both ways!  It’s highly unlikely you’ll be able to live your life without needing to borrow money. These days, most people carry credit card debt; while that’s a bad idea in most cases (we’ll be talking about the exception) it’s unlikely that you’ll be able to afford a house, for example, without borrowing.  The better your credit rating, the lower a rate you’ll get when you have to use credit for major purchases, and the less money you’ll pay in interest.  Your credit score may also be used by employers deciding whether you offer you a job and by insurance companies in setting rates, which can drastically affect the amount of money you have available to save for retirement.

Let’s start with the basics. First up: credit scores.

So what’s a credit score anyway?

A credit score is a number assigned to you based on your credit history; each of the three major credit bureaus calculated this one their own, so they’ll be slightly different.  Your credit score serves as an approximation of how likely you are to repay your debts.  There are a number of factors that influence your score, including:

• The average age of your lines of credit
• Prompt payment of (or failure to pay) your debts
• Ratio of credit used to credit available
• Number of  recent “hard” inquiries about your credit.

In the next few pages, we’ll talk about how each of these factors impact your credit, and how you can manage them to your benefit.