My Credit Score’s Higher Than Warren Buffet’s
June 23, 2008
Did you know that the world’s richest man’s credit score is only 718? How can a billionaire like Warren Buffet have an average credit score? Even my credit score is higher than his! He really doesn’t need to even borrow money since his net worth is “only” about $62 billion. He can just pay with cash! But what’s the explanation for his average credit score?
Well, the FICO (Fair Issac Corporation) score doesn’t take into account wealth or assets. What the FICO credit score (which is the score that most lenders use) takes into account is your payment history, amounts owed, length of credit history, new credit, and types of credit used (in order of importance). It measures how much of a risk you are to a lender and has a range between 300 and 850.
The FICO credit score is important because it’s not only used by lenders (which affects interest rates on loans). Potential employers can check your credit and you may be passed up for a job because of poor credit. Landlords can also check your credit and might not rent to you. Most insurance companies are also now basing your insurance policy on your credit score. Utilities companies and cell phone companies can even use your score.
So what can you do to improve your score (or establish a score if you don’t have one?) The best thing you can do is to pay your bills on time. This includes utility bills, rent, cell phone bills, and any installment loan payments (car loans, mortgages, student loans, etc.). Pay your credit cards on time every month, or better yet, pay them off every single month. Keep your debt-to-credit limit ratio (the amount owed versus the total credit limit) low.
If you don’t have a credit score (common among younger people), you can take some steps to establish your credit. Consider taking out a credit card with a low credit limit and use it to buy things that you would buy anyway (like gas) and pay it off every month. If you’re in school, you could also consider taking out a small student loan. The longer your credit history, the better, so as your credit ages, your score will improve. I’m not saying that you should go take out lots of loans and credit cards just so you can establish your credit. Don’t borrow if you don’t have to. But you can take some steps now to establish or improve your credit. Knowing is the first step!
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