How does my credit score affect me?
Introduction At some point in life, nearly everyone will apply to get some form of financial loan. A car, a house, college, or other major purchase or investment may require financing. For that reason, financial institutions depend on credit scores to keep track of individuals’ borrowing habits. Your entire loan and billing history is complied into this number, which can determine whether or not you get loans in the future and how much interest you have to pay on those loans. This number can determine much about your purchasing power. A credit, or finance, loan is a loan you get from a bank or other financial institution when you want something now but you can’t immediately pay for it. Houses are a perfect example of this type of loan; they are a huge, expensive investment, so it is common to take out a loan to help cover the cost. Over the years the borrower is obligated to pay back the loan with a certain percent of interest tacked onto the principle amount.
A credit score is just a number; however, it is a very important number. It is a vital indicator of your financial health, in the same way that your cholesterol number is just a number until you realize the significance that number has on your overall health. To avoid a financial heart attack, it is important to become familiar with your credit report and to rectify any mistakes or errors that could negatively impact your credit score. Lenders use credit scores to: • Determine creditworthiness (whether they will give you the loan) • What Annual Interest Rate (APR) to charge on credit cards A good credit score can help you get prime rates that will save you money over the long run. A not so good credit score, on the other hand, could cause you to receive an APR that is a couple of points above the prime rate, which will cost you a lot more money over the long haul. What is a “good” credit score? Generally, the higher the score, the better.
Credit scores, calculated from such information in your credit file as total debt, types of accounts, number of late payments, age of accounts, and number of inquiries, give lenders a subjective rating of your creditworthiness. Lenders then consider this rating when deciding whether or not to extend you credit. It’s in your best interest, therefore, to keep your credit as robust as possible so you can secure favorable rates and terms. If your credit score is weak, you can often strengthen it by minimizing outstanding debt, avoiding overextension, and limiting new credit applications.
