Although all of us have to deal with finances, you may still not know what a credit score is. It is not something you should be ashamed of. In fact, financial terminology is confusing for more people than you might think. The good news is that it is never too late to learn about finances and broaden your knowledge regarding loans, credit cards, and all the other aspects connected to your credit score.
If you want to get your free credit score, you came to the right place. In a moment, we’ll explain everything you need to know about a credit score and why it is important. Without further ado, here are some key things you should keep in mind:
What Is a Credit Score
You might not know it, but a credit score is a valuable asset that you possess. It determines many different financial aspects of your life, including the loans you can get and the interest rates you have to pay after agreeing to the terms. If used correctly, it can be a helpful tool to get beneficial deals on loans, credit cards, cell phone plans, life insurances, and many more.
However, you must constantly be aware that your credit score can also negatively impact your life. For instance, if you have failed to pay your bills on time, your credit score may suffer, thus, lowering your chances of getting a loan in the future.
What you may find interesting is the fact that if you have never used credit before, you may not even have a credit score. On the other hand, millions of people have multiple credit scores, which are constantly changing. The way credit scores are calculated also can vary depending on the scoring formula used and which credit bureau supplied the information to the lender.
Why Is Your Credit Score Important
After we mentioned what a credit score is, it is time to address why it is essential. There are a few crucial elements that your credit score can affect. The best way to illustrate this point is by using an example.
Let’s assume that you want to take a loan for renovating your house. Your credit score may affect your interest rate. If your credit score is good, the lender may charge you less than in the opposite case.
Of course, other factors also come into play, like how big of a sum you want to borrow. Nevertheless, what your credit score can do for you in this situation is massive. Even the difference of 1% in interest rate can accumulate over time into a substantial amount of money. In some cases, your lower credit score may even cost you hundreds of thousands of dollars.
Another good example is a situation where you apply for a loan and are denied. Your credit score might have caused a negative response. If you failed to meet the payment deadlines in the past and proven to be an unreliable borrower, you harmed your chances of finding a beneficial loan. Alternatively, you might get a loan but on much worse terms than if your credit score was higher. As such, you should always do your best to keep it in the best condition possible.
How To Have a High Credit Score
Building and maintaining a high credit score is something that everyone should aim to achieve. Here are a few tips to help you do it:
- Apply for a credit-building loan: If you do not have a credit score, applying for a credit-building loan is an excellent way to build one. It places the money that you borrow on your savings account that you can later withdraw.
- Pay your bills on time: This is one of the most critical factors you have to consider. If you fail to pay off your debts in a timely manner, there will not be many lenders willing to lend you money in the future.
- Obey the law: If you have some lawsuits, you can be sure they will be featured in your payment history. Items of public record are often big red flags for lenders, suggesting that they are better off not giving you the money.
- Pay down your balances: If your goal is to make your credit score higher, paying down your balances in total is a step in the right direction. It will show lenders that you are a person who is willing to return the money they borrowed.
The Bottom Line
Now you know why credit scores are important. All you have to do is put your newly-found knowledge into good use. Remember that, depending on your actions, your credit score can be your biggest asset or curse. If it is high, it can save you tons of money and present you with new opportunities. On the other hand, if it is low, it can be a significant obstacle on your road to achieving financial stability.
Credit card companies, mortgage bankers, insurance companies, and many others may take an interest in your credit score. To ensure it looks as good as possible, always pay your bills on time, obey the law, and pay down your balances. If you manage to do it, you will be a reliable borrower in no time.