Personal Finance

Credit Score – What Is It? How It Affects You

Your credit score is an important component to your personal finances. It gives banks and lenders more background information about a borrower to ease any concerns they have before extending a loan.

A credit score tells lenders about your creditworthiness. This simply means it is a way for lenders to get a better understanding of your personal finances and your ability to pay back a loan

If you are unsure about what your credit score is or how it can affect your personal finances, you are not alone. People are often confused, if not frustrated with their score and what appears on their credit report.

Your credit report contains public records and personal information that includes your credit history like loans from your past, any inquiries for new loans and your ability to pay back your loans.

Why Credit Matters

Having good credit gives you the ability to apply for loans and have a better chance at getting approved for that loan. If you can build up a good credit score, you are on the road towards a brighter financial future. If you receive a good credit report, it lets you have access to more financial products by simply maintaining your score.

Polishing up your financial profile and improving your credit score can help you in more ways than one in your financial future.

Ways Good Credit Can Affect You:

  • Get approved for larger sums of money when applying for loans.
  • Easier application process with better rates when financing a car.
  • Lower interest-rates on credit products for good past-behavior.
  • Better chance of getting approved for a renters’ application.
  • Quicker approvals on new credit cards or loans.

One of the most common reasons for building up good credit is to apply for a loan. Whether you are looking to apply for a mortgage, looking to finance a new car or you need a personal loan to make a large purchase or home renovation; your number will control how much money you can get approved for.

If you are able to manage a good credit score, lenders will reward you with more favorable interest-rates. Bad credit scores often come with higher interest-rates on loans and credit cards.

Another popular way a good score can be used to your advantage is when you are filling out a renter’s application for a new living situation. Landlords prefer to rent out their properties to individuals who have good credit scores with the ability to pay their rent on a monthly basis on-time.

It is recommended to monitor your credit score regularly so you can be aware of your financial standing. It is not a good idea to apply for any financial products without knowing your credit health.

How to Get a Good Credit Score

Whether you are a young couple applying for your first mortgage or an older individual looking to finance your new car; you can do a few things to prepare yourself and get a good credit score.

There are many different ways to improve your credit score and it is helpful to be proactive about boosting your score.

What is a Good Credit Score?

  • Poor: anything below 580
  • Fair: 580-669
  • Good: 670-730
  • Very Good: 740-799
  • Excellent: 800+

Your credit score is an average value that is aggregated from the 3 major credit bureaus. TransUnion, Equifax and Experian on the three biggest and most relied upon credit bureaus that lenders rely on.

Check Your Score

Make sure you check your score and find out what the three major bureaus have in their database.

Each credit bureau will have a different scale and way they generate their credit report. While you cannot influence the outcome of your credit report, you can proactively monitor and continue building your score as you develop your personal finances.

Fix Any Errors on Your Credit Report

Many people experience inaccuracies on their credit report and difficulties with the credit bureaus in hope of removing these errors. Make sure you take the time to visit each of their websites and follow their procedures to remove errors on your credit report.

Old landlords might leave negative marks on your record, creditors might have bad marks due to late payments from previous statements and lenders might even hold you accountable for late payments that might not even be your fault. You must read through your entire credit report and pick out any errors or inaccuracies ahead of time.

Maintain Your Finances

As you make an effort to monitor your credit health, communicate with creditors to remove any inaccuracies and raise your score; you will begin to build a stronger personal finance profile.

You will become a more ideal borrower when it comes to applying for loans or new credit cards, you will be considered a less-risky customer for lenders and you will have a healthy credit score to help you thrive in your financial future.

Make sure you are proactive and check your score to get the process started; there is no need to wait for negative marks to impact your personal finances.

Sources: Dictionary, FICO, USA.gov, TransUnion, Equifax, Experian

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