Informative Speech : Credit Scores

1. First, payment history helps lenders evaluate how reliably we repay borrowed money.

   1. According to Safdar Ahmad, in an article published in the Journal of Business and Economic Options on June 30, 2018, “Late payments and defaults have a negative effect, and recent delinquencies have more weight than older ones” (p. 46).

1. The article explains that late payments and negatively affect credit scores, with recent missed payments carrying more weight than older ones. 

2. For example, someone who consistently makes credit card payments on time establishes a record of reliable repayment. Repeated missed payments, however, may raise concerns for lenders about future repayment. 

1. Next, credit utilization shows how much of our available credit we are using.

   1. According to Safdar Ahmad, in an article published in the Journal of Business and Economic Options on June 30, 2018, “Repaying debt and reducing credit utilization can improve the FICO score” (p. 46).

1. Credit utilization compares your credit card balance with your credit limit. For example, if your card has a $1,000 limit and a $200 balance, you are using 20% of your available credit. An $800 balance on that same card would mean 80% utilization. 

2. A high Utilization rate can suggest that you rely heavily on your available credit. Even when payments are on time, using most of your credit limit can affect your score and contribute to lenders' concerns about additional borrowing.

1. Finally, length of credit history shows how long we have been managing credit.

1. According to myFICO, in the website article “What is the Length of Your Credit History?” with no publication date listed, “Even some people who haven't had credit for a considerable length of time can still have a high FICO score if the rest of their credit report looks good.” 

1. A longer credit history provides more information about a borrower’s repayment behavior over time. For example, someone who has consistently made payments for five years has a longer record for lenders to evaluate than someone who opened their first credit card six months ago. 

2. However, having credit for many years does not automatically make someone a reliable borrower. How they managed their accounts matters too. A long history containing repeated missed payments is different from a long history of on-time payments. 

“Today, we explored three parts that help lenders evaluate our borrowing history, those of which are, payment history shows how consistently we repay, credit utilization shows how much available credit we use, and length of credit history shows how long we have managed credit.

So, by now we have thought about financing a car or renting an apartment, but before completing those applications, we should remember that our credit score can influence our financial opportunities. Every payment we make and every balance we carry contributes to that number—and ultimately, to the financial opportunities available to us.”