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From securing loans like a mortgage, credit cards and auto loans to an offer of employment or a rental property, and even some types of insurance coverage, your credit score can be used for a variety of purposes. At its essence, a credit score is used as a proxy for your ability to fulfill your financial promises, and it can be used to influence the terms of a loan, employment or rental agreements and other things such as the favorability of interest rates or terms of insurance offered to you.
Future income levels of doctors in training unfortunately have no bearing on residents’ credit scores. Your score is based on history, not the future. Accordingly, it’s important to know what factors affect your score, especially for residents, fellows, and early-practicing physicians.
There are two primary credit scoring models, VantageScore and FICO, that credit bureaus utilize to standardize the scoring methods. With FICO, perhaps the more recognized of the two, there are five basic attributes that contribute towards your score.
Here they are in order of their influence from largest to smallest:
Credit scores are not affected by your age, marital status, income, bank account balances, any investment account balances.
According to Experian data from September 2021, the average FICO score in the United States rose slightly to 714 in 2021, but where does that stack up against all consumers?
FICO, as well as VantageScore, establishes ranges from “Poor” to “Excellent” across several models. For base FICO scores, those ranges are as follows.
While the average is 714, approximately 1.2% of Americans have achieved the exceptional score of 850 while an estimated 12% of Americans have scores in the “Poor” category.
Average credit score by age group as reported by CompareCamp was:
If your score is above or below these benchmarks, resist the urge to conclude anything from these statistics. What’s important for you to focus on is the trend and what is within your control.
Unfortunately for medical students, residents, and fellows, being a future high-income earner has no bearing on your credit score, as it is based entirely on your credit history. Additionally, physicians in training and early practicing physicians may have low scores even if they have normal spending patterns. High amounts of student debt, among other things, can contribute to these lower scores.
Nevertheless, there are a few things you can do to help improve your score. Your credit score is a work in progress and focusing on just a few things can make a big impact.
As you work to maximize your credit score or repair one that is less than desired, there are a few things that will take you backwards.
Well done! You’re asking the right questions and taking solid steps to secure better outcomes custom designed for you as a physician. If we can help you navigate any of this, please reach out to us.
The information provided herein was prepared for educational purposes only and is not a solicitation to buy or sell any security or insurance product, nor an offer to provide investment advice. All examples are hypothetical and for illustrative purposes only. Nothing contained herein should be construed as legal or tax advice and is not intended to replace the advice of a qualified tax advisor or legal professional. The information contained herein may have been compiled from third-party sources we believe to be reliable but cannot guarantee its accuracy or completeness.
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