A credit score is a number that lenders use to determine the likelihood that a consumer or business will pay bills on time. By predicting risk, credit card companies and lenders establish the probability that an individual will meet their loan or credit card payment deadlines. The factors that determine credit scores are payment history, total amounts owed, length of credit history, new credit and types of credit, so finance professionals must understand how credit scores work to achieve short-term and long-term goals of their companies and clients.
The online Bachelor of Business Administration (BBA) in Finance program from Southeastern Oklahoma State University will help students understand the theory and practical applications of financial analysis, financial stability and credit analysis. In addition, program coursework introduces students to valuable tools in wealth management or financial projections for any business setting.
Why Credit Scores Are Important
A credit score reflects an individual’s debt management and payment background. Someone with a credit card or loans will have credit reports with the three primary credit bureaus: Experian, Equifax and TransUnion. Credit scoring companies, such as VantageScore and FICO, will use credit score information to determine the person’s credit score.
An automatic scoring model asks questions about the credit report, such as “are there any late payments?” The answers to the questions establish the number of points in a credit score. Then, the calculating software totals the points to compute the overall credit score.
Credit scores range from 300 to 850. The higher the number, the better the credit score. Payment history and total amount owed are the two most important factors in determining a credit score. The timeliness of payment has the most weight in a credit score total. If there are no late payments, a credit score will be higher than if there are late payments. Late payments are weighed against the number of days late, how long ago the payments happened and how many times the bill was paid late.
Banks, credit card companies, auto dealerships and mortgage bankers are types of lenders that might check a person’s credit score. Landlords and insurance companies will also check credit scores to determine financial responsibility regarding late payments. Maintaining a low credit card balance is the second biggest factor for earning a high credit score. Keeping a low balance, having minimal accounts with an outstanding balance and sustaining a low total combined debt amount (that includes loans and mortgages) will positively impact a credit score.
A credit score can influence a person’s ability to buy a house or rent an apartment; qualify for a loan, mortgage or credit card; set up home utilities without paying a large deposit and secure lower interest rates. Good credit can create many opportunities to achieve long-term financial goals.
When individuals and businesses borrow money, the economy generally benefits, but many items that people and businesses want — including houses, cars, machinery and raw goods — are typically too expensive to attain without using credit. Credit cards and loans enable payments over time and access to essential items and services.
Financial Literacy and Improving Your Score
Many people may not realize that a good credit score (or credit standing) can impact your ability to get a job. According to one LendingTree article, employers do not have access to your actual credit score, but they can run a credit check on you for the following reasons:
- Verify your identity
- Confirm your previous professional experience
- Measure your ability to handle money
- Assess your financial and personal stability
If you don’t have a great credit score, there are a number of ways to improve it. These include reviewing your credit reports, organizing your bill payments, limiting requests for new credit and more. Financial literacy skills earned through an advanced degree in business and finance can equip you with the insight necessary to improve your credit score so your job prospects are not impacted.
How an Advanced Degree Helps
Southeastern Oklahoma State University’s online BBA in Finance program provides an executive-level perspective on policy and strategic planning, allowing graduates to practice analysis, internet-based simulations and case studies that will build valuable skills.
An essential focus of the program is grasping the importance of credit and its role in all areas of finance. One course called Advanced Personal Finance hones student skills in “financial planning, personal investing, budgeting, tax planning, real estate financing, credit management, insurance protection, and retirement and estate planning.” A foundation in credit scores and financial health allows graduates to pursue relevant jobs such as operations manager, financial analyst, project coordinator, credit analyst and more.
Learn more about Southeastern Oklahoma State University’s online BBA in Finance program.