What Doctors Need to Know About Credit Scores

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Your credit score plays a big role in your life.

Also known as a “FICO score” or “risk score,” your credit score is a tool that potential creditors and lenders use to help them decide whether to loan you money. 

But not only that: your credit score can also affect whether you get the apartment or cell phone contract you want, how much insurance you receive, and more.

When dealing with traditional financial institutions to secure a loan, credit, or approval for higher limits, it’s important to have a good credit score. The more you try to borrow—like for a car or a house—the more critical the state of your credit becomes. 

As a doctor-in-training, your future income unfortunately has no bearing on your credit score: your score comes down to history. That’s why it’s critical to understand what affects your score, what you can do to consistently improve it, and who can help you along the way. 

What is a credit score?

Your credit score is an aggregated number that traditional banks use as an indication of the likelihood you will repay your loan on time. Basically, it gives lenders an idea of whether you are a safe or risky “bet” to loan money to.

Probably the most well-known type of credit score lenders refer to is the FICO Score, created by the analytics software company Fair Isaac Corporation. 

The overall FICO score range is between 300 and 850. Generally speaking, anywhere over 670 is considered “good,” “very good,” or “excellent” credit history. Anything lower may make it difficult to get financing at a decent rate. 

So how does FICO figure out your credit score? They base it on information in your credit report. 

What is a credit report?

If you want a car loan, personal loan, mortgage, credit card or something else, the potential lender will not only want your credit score—they may also want to run a credit report on you. 

Your credit report does not include your credit score. Rather, it contains information summarizing how you have managed your credit accounts, including:

  • Whether you have a history of paying late or defaulting on repayments
  • How much money you owe compared to your credit limits (also known as “credit utilization”)
  • How often you have applied for credit over the last few months
  • How long your credit accounts have been open
  • The types of credit you have (e.g., credit cards, car loans, student loans, etc.)
  • Any repossessions or bankruptcies

All of the above is factored into your overall credit score, and how likely you are to repay your debts. 

Accessing your credit score and credit report

To get your credit score 

FICO works with hundreds of financial institutions to provide free access to FICO scores for consumer accounts, so first check any bank or credit card statements to see if your score is listed there. You can also check with these free credit score providers.

It’s wise to check your credit score at least once a year—as well as before applying for any type of credit.

To check your credit report

Credit reports can be quite long and detailed. Because identity theft and fraud run rampant nowadays, it’s a good idea to regularly check your credit report in addition to your credit score. After all, you don’t want an error negatively affecting your credit score or your chances to secure credit or financing.

You can get a free copy of your credit report every 12 months from each of the three national credit bureaus: Equifax, Experian, and TransUnion. This means you can check your credit report at no cost every four months. 

When you review your report, make sure the information is accurate and complete. If you see errors, immediately notify the company that issued the report.

Ways to improve your credit score

Unfortunately, being a future high-income earner has zero impact on your credit score. Your score is based on your credit history. 

Moreover, you may still have a low score even if you have normal spending patterns. This may be due to any number of things, including having high amounts of student debt or sharing a joint credit card.

However, there are a few things you can do to help improve your score:

Make minimum (or more) payments on time

Part of your credit score also considers just how much of your credit is being used—so try to keep your balance as low as possible. By keeping up with at least your minimum monthly payment—and paying it on time—your credit score should continue to improve over time. Experts suggest using 30% of your credit limit or less.

Create a healthy credit mix

A healthy credit mix contains two types of credit:

  • Installment loans—where you borrow a specific amount and then make monthly payments for a specific length of time. Examples of this includes car, student loan, mortgage payments or a PRN Personal Loan.
  • Revolving credit—where you borrow what you need, paying it back monthly from a minimum amount to the full balance. The prototypical example of this are credit cards.

Having a car loan (installment), a student loan (installment) and a credit card (revolving) would be considered a healthy credit mix; whereas having four credit cards could bring your score down.

Consolidate toxic debt

If you’re having trouble making credit card and student loan payments with interest, you have “toxic debt” that will bring down your credit score. 

The good news is you may be able to merge all your balances into one new loan. In addition to improving your credit score, debt consolidation has several benefits — including reducing your interest rate and lowering your monthly payments.

A financial institution that understands doctors

There is good news: while your credit score is important, it isn’t the be-all and end-all for securing financing through Panacea Financial.

As doctors ourselves, we—unlike traditional lenders—don’t hold your credit score against you. We understand the financial complexities involved in your career path, and we don’t penalize you for the investment you made to become a physician. We also know doctors-in-training are not fairly represented by their credit scores.

That’s why we have built products and services that de-emphasize the importance of your score. For medical students, residents, and fellows, we do not use your credit score to determine eligibility for our PRN Personal Loans

Thinking of consolidating your debt? Need more advice on bringing up your credit score? We can help. Contact us today.

Tyler Stafford, CFA is the Chief Executive Officer and Co-Founder of Panacea Financial. He has spent the past 15 years within the banking and investment industries and has lectured nationally on personal investment strategies for physicians and physicians in training. Additionally, he also serves on the Board of Trustees for the Baptist Health Foundation.

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