One of the most important indicators of your financial health is your credit score. At Entrepreneurs Drivers, our goal is to help rideshare drivers achieve financial freedom and live the life they’ve always dreamed of through financial education, investment opportunities, and becoming part of a network of dedicated, self-starting individuals who have what it takes to make their dreams a reality.

In this blog post, we discuss what your credit score is and why it matters, how it is calculated, and steps you can take to improve your credit score and overall financial health. For even more financial education and resources, book a free 30-minute consultation with Chief Visionary Driver Tony Gracia today.

Definition
A credit score is a number that is calculated using a mathematical formula — called a scoring model — which indicates how likely you are to pay back a loan on time. Banks and companies use your credit score to determine whether or not to loan you money for mortgages, credit cards, cars, and other credit products. They also are used to determine the interest rate and credit limit you receive on a loan or credit card.

A common misconception is that you have just one credit score; in fact, there are many credit scores available to you, as well as lenders. Credit scores may differ according to different scoring models, the source of your credit history, the type of loan product, and even the day it was calculated. A higher credit score means that it is easier to apply for a loan and to get a more favorable interest rate. This is why it’s essential to maintain as high a credit score as possible in order to maintain your financial health.

How Your Credit Score Is Calculated
As discussed above, different companies may use different scoring models to determine your credit score. Generally, however, all of your credit scores will be in a similar range (for example, one company may give you a 725 credit score, based on your credit card company’s online report, while another may use their own scoring model to come up with a 700 credit score).

The reason why your credit scores will be in a similar range is because there are several common variables that companies tend to use as part of their scoring model. Below, we discuss each one, as well as the approximate percentage of your credit score that each factor makes up.

• Payment History (35%): Your payment history shows whether you make your credit card and other loan payments on time, how often you miss your payments, how many days past the due date you typically pay your bills, and how recently payments have been missed. The higher proportion of on-time payments, the higher this part of your score will be. Each time you miss a payment, it negatively impacts your score.
• Capacity Used/Current Debt (30%): How much you currently owe on loans and credit cards makes up 30% of your score. This is based on the entire amount you owe, the amounts and types of accounts you have, and the proportion of money owed compared to how much you have available. High balances and maxed-out credit cards will lower this part of your credit score, but smaller balances can raise it, as long as you pay them on time.
• Length of Your Credit History (15%): The longer your history of making timely payments, the better your score. While it may seem wise to avoid applying for any credit or loans altogether so that you don’t acquire any debt, it can actually hurt your credit score if you have no credit history for companies to review. As long as you pay your bills responsibly, and in a timely manner, taking out credit and loans will help you get even more money in the future.
• Types of Credits Used (10%): Approximately 10% of your credit score is determined by the types of accounts you have. Having a diversity of accounts — such as installment loans, home loans, retails loans, and credit cards — may improve your score.
• Recent Credit History/Applications (10%): Recent credit activity and applications make up the final 10% of your credit score. If you’ve opened up a lot of accounts recently or applied to open accounts, it suggests potential financial trouble and could lower your score. On the other hand, if you’ve had the same credit cards and loans for a while and pay them in a timely manner (even if you had a history of bad credit in the past) your score will go up over time.

Ways to Improve Your Credit Score
While a bad credit score may seem like a death sentence, there are things you can do to get back on the right foot.

• Apply for new credit cards only as needed: If you’re in financial trouble, it may be tempting to apply for new lines of credit to cover all your expenses. However, this can ultimately get you in even more debt and tempt you to overspend. Applying for a lot of credit will also result in multiple “hard inquiries” into your credit score, which will remain on your credit report for two years.
• Dispute any inaccuracies on your credit reports: Inaccuracies on credit reports do happen, which is why you should be sure to thoroughly check your reports. Verify that the accounts listed are current and correct. Be sure to monitor your credit score frequently and if you see errors, dispute them as soon as possible before they become a problem. At Entrepreneurs Drivers, our Driver Entrepreneurial Educational & Professional Program (D.E.E.P.P.) will provide you with the skills you need to accurately dispute any errors.
• Pinpoint areas for improvement: In the section above, we outlined the different variables that constitute your credit score. Look over each one and determine which aspects are dragging your score down. Do you often fail to pay your bills on time? Do you lack diversity when it comes to the different types of credit that you’ve taken out? Perhaps your credit history is too short for companies to make any accurate determinations. Focus your efforts wherever the trouble lies.

Drive Your Way Towards Financial Freedom With Entrepreneurs Drivers!
At Entrepreneurs Drivers, we’re committed to helping ambitious rideshare drivers reach their full potential and enjoy financial independence, more time with their family, the ability to travel the world, and the freedom to live a lifestyle that they truly love. To learn about our one-of-a-kind rideshare driver education program, which includes even more invaluable information and advice about improving your financial health, book a free 30-minute consultation with our Chief Visionary Driver, Tony Gracia, today.