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.

What is a credit score?

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. 

What determines a good credit score?

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:

• Payment history makes up 35% of your credit score and takes into account on-time payment of bills. 
• Total amount owed comprises 30% of your score and analyzes the percentage of credit being used in relation to the amount available to an individual.
• Length of credit history counts for 15% of a credit score and sees longer credit history as less risky because of a more robust payment history.
• Credit types make up 10% of the score and take into account the amount of installment credit (like mortgage and car loans) and revolving credit (like credit cards).
• New credit is 10% of the score and looks at new accounts, new applications and the most recent account opening.

What does FICO mean?

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. 

What is a good credit score? 

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: 

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

Why is credit score important?

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 have de-emphasized credit score in determinining your eligibility. 

What if I don’t have much of a credit history?

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: 

• Credit-builder loans are small loans that often do not require a credit score or credit history. With a credit-builder loan, you will make all payments first, then receive money at the end, minus interest and administrative fees. 
• Another option is to use a secured credit card. You will “secure” the card with a cash deposit, then it will function as a normal credit card, allowing you to build your credit and increase your score overtime.
• Becoming an authorized user on a close friend or family member’s account can be another way to build credit because it allows you to utilize credit based on the creditworthiness of another person, though this may not be an option for many borrowers.

What is the average credit score?

According to Experian, the average credit score rose to 714 in 2021, the fourth consecutive year of an increase.

How do I improve my credit score? 

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:

• Check your score and understand why it may be low. There can be a variety of reasons you can have negative marks on your credit score. It is important to know if you have any, if they are legitimate, and if they need to be challenged or fixed.
• Paying your bills and debts on-time. It will likely take at least six months of on-time payments to see a change in your credit score.
• Use less of your available credit. If possible, reducing how much credit you are using will help you maintain a lower credit utilization rate.
• Keep old credit accounts open. When you decide to stop using a credit card, it is often best to not close the account because doing so will likely raise your credit utilization rate.

Does paying off student loans help credit score? 

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.

How does my credit score affect my lending eligibility at Panacea Financial? 

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 to solely 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.