Demystifying The Common Credit Score

Because to improve your credit score, you need to understand it first!

July 21, 2021

At Peachy, our mission is to improve patients’ physical, mental, and financial health. However, achieving that mission requires more than just transforming the medical bill payment process–it requires providing patients with the tools necessary to understand how to improve their health.

As we begin to provide those tools, we hope to break down the walls surrounding financial literacy. King among the walls that have historically kept many individuals in the dark, financially, is the mystery of credit scores. Too few Americans understand what a credit score is and why it even matters in the first place!

So, today we'll attempt to shed some light on this mystery!

What is a credit score?

Simply put, your credit score is a product of the information found in your credit report.

That's cool and all, but what in the world is a "credit report?"

Essentially, your credit report is a virtual file full of information related to you and your history with debt. It includes information like:

(1) your payment history,
(2) the amount of money you currently owe to creditors,
(3) how long you've had different lines of credit,
(4) the different types of credit you have, and
(5) any new lines of credit that you've recently opened.

We now know what is in a credit report, but how does that credit report become your credit score?

Credit reports are like "raw materials." Raw materials like wood and ore might be somewhat helpful in their natural form, but they become truly useful when transformed into something more practical, like 2x4’s or steel pipes. The major credit reporting bureaus (e.g., Experian, TransUnion, and Equifax) make it their job to transform the "raw materials" of your credit report into something useful–your credit score.

They gather and collect the information found in your credit report–the five categories of information we mentioned above–and then push it through what you could imagine as a giant machine labeled the "Credit Score Calculator." Like tree trunks that become 2x4's at the saw mill, your credit report comes out the other end of the Credit Score Calculator as a three-digit number somewhere between 300 and 850.

And the transformation of your credit report into this three-digit number is helpful because we know how to assign meaning to each number. While prior to its encounter with the Credit Score Calculator a credit report might look like a jumbled mess of car loans and credit card payments, once transformed into a credit score, it becomes easy to interpret, as we know that:

300-580 = Poor
580-670 = Fair
670-740 = Good
740-800 = Very Good
800-850 = Excellent

So just as 2x4's are helpful because we can use them to build things, credit reports become helpful when transformed into a credit score because we know how to use them to assess creditworthiness. And that's why credit scores matter: because decision-makers and gatekeepers use them to make decisions about how they interact with you.

Using your credit score to make decisions.

Often people think that their credit score only really matters if they want to buy a car or house. This is a dangerous assumption that leads people to underestimate the impact that a credit score can have on their daily lives.

Credit scores are NOT just for buying houses and cars.

Instead, your credit score can impact:

→ Landlords' willingness to rent to you

→ The price of your phone plan

→ The size of your utility deposit

→ The interest rates of your credit cards

→ The size of your insurance premiums

So pretending that your credit score only matters if you want to buy a house in the next few years can have profound negative effects on your budget–and even where you live! It could be the difference between moving into your dream apartment and staying next door to your current set of noisy neighbors!

What can you do?

In the future, we'll share more about things you can do to help boost your credit score. But one simple thing you can do today is: refer your provider to Peachy, where we are enabling patients to report positive medical bill payments to the credit bureaus. With Peachy, you can start improving your credit score just by paying your medical bills! Refer your provider today and start improving that credit score ASAP!

Appendix
Published on: 
July 21, 2021

Note: This is not to be taken as tax, legal, benefits, health or financial advice. Since rules and regulations change over time and can vary by location, consult a lawyer or financial expert for specific guidance.

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