How credit scores work
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About this module
Credit is one of the most misunderstood parts of personal finance. A good score opens doors; a bad one costs you thousands in higher rates. This module breaks down exactly how scores are calculated, what types of debt to avoid, and how to get out if you are already in deep.
Key takeaways
- Your score is built from five factors: payment history (35%), utilization (30%), length (15%), mix (10%), new credit (10%).
- Not all debt is equal - a mortgage at 4% builds equity while a credit card at 24% just burns money.
- Your free annual credit report at AnnualCreditReport.com shows everything lenders see.
- The debt avalanche method saves the most money; the debt snowball builds the most momentum.