Have you ever heard people throw around words like credit score, credit rating, credit report, credit file, good credit, or bad credit and silently wonder what exactly they meant?
You likely understand that good credit = more purchasing power and bad credit = fewer financial options, right? What else is there to know? Well, the truth is that reading and understanding your credit score and credit report hold the key to your financial future. Whether your financial goals include saving for retirement, paying off your student loans, or buying a home, the information contained in your credit report has important repercussions for your plans.
WHAT EXACTLY IS A CREDIT SCORE?
A credit score is a 3-digit number between 300 and 900 that ranks how responsible you are with credit. 900 is the best credit score possible, and 300 is the worst credit score. You gain points for actions that demonstrate your responsibility with credit, such as making payments on time and keeping a low balance on your credit card or line of credit. You lose points for actions that demonstrate your difficulty with managing credit, such as making late payments, maxing out credit cards, and submitting too many credit inquiries or applications.
WHAT IF YOU HAVE A BAD CREDIT SCORE?
The beauty of your credit score is that it isn’t set in stone. It is constantly fluctuating based on your actions. Paying off that debt from two years ago could stabilize a credit score spiral. Setting up a reminder to continuously make the minimum payments on your credit card could boost your score. If your credit score is too low to be approved for most credit cards, a secured card can help build your credit score.
WHY SHOULD YOU KNOW YOUR CREDIT SCORE?
The first step to getting on the right track financially is to figure out what track you’re on now! Don’t wait until you are turned down for that loan you were counting on, or refused financing for a new car, to check your credit score. Checking your credit score yourself lets you know beforehand how you rank and (most importantly) where there is room for improvement. Let’s face it: today, your credit score is more important than ever. Everything from how much you pay for insurance to whether or not a landlord will rent to you may be based on your credit score.
To sum up, your credit score is essentially your identification in the world of lending and borrowing. To dig a little deeper into the world of your credit score and credit history, check out this post: Credit Reports: Your Credit Life History.