Credit scores can significantly affect your life financially. These three-digit values play a key role in a lender’s determination of your credit worthiness.
Doctors can often become burdened by a low credit score because of their need to take on substantial debt early in their careers. Credit scores are a major reason why doctors struggle to find funding, especially while in training.
If your credit score is holding you back from obtaining the funds you need, we are here to share the basics of the financial metric and how you can improve your score moving forward.
A credit score is a number between 300 and 850 that reflects a person’s creditworthiness, which is a lender’s determination of how suitable an individual is to receive credit and pay it back. This number is determined based on credit history. Credit history is a record of how a borrower has managed their credit in the past, including total debt load, number of credit lines and timeliness of payments.
There are several factors that make up a credit score. These are based on your credit history, and calculations for FICO scores are as follows:
The term “FICO” is often mentioned in relation to credit scores, but what does it mean? The credit score model was created by the Fair Isaac Corporation, also known as FICO. Other credit-scoring systems exist, but FICO scores are the most commonly used.
As stated before, credit scores can range from 300 to 850. People with credit scores under 670 are often classified as subprime borrowers and will typically be charged a higher rate on loans because of perceived increased risk of not paying their loans back.
Lenders typically classify scores in ranges similar to this:
Credit scores are used in many aspects of a person’s life, from large mortgages and loans to smaller deposits on smartphones, utilities and apartment rentals.
People with low credit scores may be rejected for credit cards, loans, mortgages, auto loans and more. If not rejected, they may experience higher interest rates, which will increase the life of the debt you are trying to take on.
Many doctors experience rejection or high interest rates because of their high credit utilization. This high credit usage is typically caused by student loan debt and personal debt, taken on because of the high workload and low pay that many doctors-in-training experience. At Panacea Financial, we understand that these factors are unavoidable for many doctors; that is why our PRN Personal Loans do not have a minimum credit score requirement.
If you have too few accounts for a lender to determine your creditworthiness, you have what is known as a “thin credit file.” Credit takes time to build, but if you have never utilized credit or only have a few accounts, you may land in this boat. Being a thin file borrower can affect your ability to get a credit card or qualify for certain loans such as a mortgage and affect the interest rates you are offered.
If you have a thin credit file, here are some tools for building credit:
According to Experian, the average credit score rose to 714 in 2021, the fourth consecutive year of an increase.
Improving your credit score will take time, but the effort is worth it for lower rates and decreased risk of rejection. Ways to improve credit score include:
Student loan payments are beneficial to your credit score as long as they are on-time throughout your repayment period. When the time comes to make your final payment, your credit score will likely not be affected much.
In fact, you may experience a slight dip in credit score, a steady score or a slight increase in score. There is no set rule for what will happen to the number once you pay off your educational debt, as it also depends on your other sources of debt.
Ultimately, your full repayment will likely have a positive impact on your credit score over the next 10 years while it remains on your credit report.
Panacea Financial was created based in part on our co-founder’s difficulty searching for a reasonable personal loan, despite his high debt and low credit score while in residency.
We understand the barriers a credit score can put on you, despite your professional abilities and progress. That is why we de-emphasize your credit score, rather than using it to determine your eligibility for our PRN Personal Loan.
Your investment in your future should not be penalized. We are here to support you every step of the way.
Panacea Financial, a division of Primis. Member FDIC.
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