Your Credit Score and Buy Now, Pay Later Payment Methods

What is Your Credit Score?

First things first. Your credit score is a three-digit number that financial institutions and third-party lenders use to assess the risk involved in extending credit to you. Your credit score is a contributing factor that tells lenders how likely it is that you will repay your financing.

In the US, your credit score is usually referred to as your ‘FICO score’. Major credit agencies use this score to rate your creditworthiness. Your FICO score will land anywhere between 300 and 850.

The higher the FICO, the more financing opportunities a credit institution will give to you. The lower your credit score is, the higher lenders place your risk level, resulting in fewer financing opportunities.

From poor to excellent, here is a general look at credit score ranges and what they mean:

• 300-579: Poor
• 580-669: Fair
• 670-739: Good
• 740-799: Very good
• 800-850: Excellent

Your credit score has a significant impact on whether banks extend financing to you. Beyond the approval, your credit score can also be a factor in determining your repayment terms. Repayment terms are your APR, term length, and monthly payment. 

Your credit score is a powerful number that can seriously impact your financial health. Understanding the factors that go into your score can be beneficial in the financial choices you make. 

Your credit score is determined by five top categories. Each category contributes a different level of effect on your score. The following are factors and the associated relevant impact they have on your credit score: 

• Payment History: 35%
• Credit Utilization: 30%
• Length of Credit History: 15%
• Inquiries: 10%
• Credit Mix: 10%

When Credit Scores Go Bad

In order to take control of your credit score, it’s best to start with educating yourself on what a credit score is, what impacts it, and of course, how to improve it. If you are currently struggling with a low credit score, there are various best practices in place that can help you improve your score.

Credit cards, for example, can contribute to your overall available credit. This can help positively contribute to your credit score. The problem with credit cards is the vicious cycle of interest charges that often snare shoppers into long-term credit card debt. This is probably why in 2021 only a third of the entire Millennial population in the US carries a credit card in their name. So if Millennials don’t prefer credit cards, what other products exist that allow shoppers to pay overtime?

Tips to Better Financial Health

Credova is a consumer financing platform integrated directly into retailers’ point of sale technology to provide customers, if qualified, a buy now, pay later payment method for their purchases both online and in brick-and-mortar retail locations. Credova’s buy now, pay later payment method gives shoppers the opportunity to complete purchases and pay over time, without using their credit cards.

Credova’s buy now, pay later financing option gives you the benefit of not paying for an entire purchase upfront, but allowing you to break payments down and pay them off in the future.  The difference between Credova and credit cards is, Credova is not a compounding interest financing product. You know what your payments will be, and when, and have a set contract repayment plan. 

While using your credit card isn’t inherently a bad thing, sometimes it does make sense to utilize a buy now, pay later payment method like Credova. There are also many ways to build good financial history and health, to benefit your credit score. 

Create a Positive Payment History 

When credit bureaus assess your financial history and assign you a specific credit score, payment history is a significant determinant throughout that process. Do you pay your bills on time each month? 35% of your credit score is based on the person’s ability to pay their bills on time. The more consistent your payment history, the higher your score.

1. The 30% Rule

Assess your various lines of credit, including your credit cards, and make sure your credit utilization, the balance of your credit cards do not exceed 30% of the total available credit. If you have $1,000 total available credit, keeping your balance below $300 is the best practice. Balances exceeding 30% of available credit have the potential to negatively impact credit scores. 

2. Collections

Accounts in collections can have a significantly negative impact on your credit score. Making on-time payments and keeping accounts up to date to ensure they do not become delinquent is best practice. 

3. Being Strategic with Inquiries

When you do apply for new credit, most typically, a credit inquiry is performed. There are two types of inquiries. A hard inquiry, and a soft inquiry. They can also be referred to as “credit pulls”. It’s best practice to keep hard inquiries to less than one per year, and 2 total on your credit report at any given time. Hard inquiries fall off of your report typically two years post inquiry. Every hard inquiry generally detracts 1-2 points from your total score. If available, opt for services that conduct soft inquiries/pulls. Soft pulls do not detract from your credit score, nor do they show as a hard inquiry on your report.  These inquiries are not reported to the credit agencies 

Credova is here to provide a better payment method 

Buy now, pay later payment methods, Credova Financial, and the new generation of fintech services were created to solve many of the problems and to disrupt an aging banking industry that no longer best serves consumers. Credova Financial answered the call by building an innovative, transparent, buy now, pay later platform.

Learn more about Credova at www.credova.com