How are credit scores calculated?

The video tutorial explains the evolution of borrowing and credit scoring, focusing on the FICO score system. It details how credit scores are calculated, the factors affecting them, and their significance in financial decisions. The tutorial emphasizes that credit scores reflect past debt relationships and not personal financial responsibility. It also covers the importance of maintaining a good credit score for achieving life goals like home ownership and business startups.

What was the primary reason for the development of the FICO score?

• To help lenders assess borrower risk efficiently

• To create a universal currency

• To eliminate the need for credit bureaus

• To replace personal relationships in lending

Which factor has the largest impact on your FICO score?

• New credit inquiries

• Payment history

• Length of credit history

• Credit diversity

Why is it important to maintain a low credit-to-debt ratio?

• It signals financial stability to credit bureaus

• It allows for more frequent credit checks

• It reduces the interest rate on loans

• It increases your available credit limit

What is the effect of having a mix of different types of credit?

• It decreases your credit score

• It makes it harder to get loans

• It has no impact on your credit score

• It improves your credit score

What is a 'soft pull' in the context of credit inquiries?

• A credit check that increases your score

• A credit check that lowers your score

• A credit check by potential creditors

• A credit check by insurance companies or employers