There more notion of terms like “credit scores” seems to yield one of two reactions from people:
1. Putting people to sleep.
2. Images of impending doom with the FreeCreditReport.com guy singing in the background.
I’m here to tell you to snap out of it! Knowing about your credit score is probably one of the most important things you can do on your journey into financial freedom.
You may not have noticed this yet, but your credit score can basically run your financial life. Yes, those three numbers can easily determine the outcome of so many of life’s big purchases – from student loans to buying a house – so it’s very important to make sure you have a healthy credit history.
How is this possible? Well, your credit score is basically a culmination of your credit report which shows a history of how you’ve paid your bills, how much credit you have open and how much money you still owe. Furthermore, your credit report shows whether you’ve had a judgement against you, any claims you’ve made or if you’ve had your wages garnished. Those three numbers that make up your credit score are pretty much your overall grade in the department of borrowing money – a grade that shows lenders how likely you are to repay a loan.
I’ll eventually go into ways you can keep a healthy credit score, but first I figured it would be wise to detail just how your credit score runs your life. After all, you can tell someone they need a good credit score but if you don’t really tell them why it’s important they may not get it.
Interest rates on loans
There may come a day when you need to take out some sort of loan – say for a business, a car, for school or for personal reasons. Your credit score can determine how much interest you’ll be paying on said loan. The lower your score the less interest you’ll have to worry about and vice versa. In other words, a healthy credit score can actually end up saving you a ton of money.
Getting a loan period
For some loans, your credit score can determine whether or not you even get approved to borrow the money. This alone is a pretty good reason as to why you should keep a healthy score.
Rent or mortgage
If you’re looking to rent a place the landlord will probably ask to look into your credit. Likewise, if you’re trying to buy a house you can bet the bank will be looking into your credit history now more than ever. The better your score the more likely you’ll get approved by a landlord or the bank. Furthermore, if you get approved for a mortgage your credit score will also determine how much you will be paying in interest.
Getting a job
Sometimes I get job candidates that get insulted when I ask about their credit score, at which point I explain that companies are now looking into credit histories more than ever so they’d better get used to it. This isn’t necessarily something new, it’s been pretty standard for banks and other financial institutions for quite some time, however since the Recession more and more companies are following suit.
The logic may be a bit flawed in their approach, after all just because you have a bad credit score doesn’t mean you’re going to steal money, but the truth remains that companies feel more comfortable hiring people with good credit scores. Having a solid financial history shows companies that you are responsible with your money so you’ll probably be responsible with theirs.
Many insurance companies are now pulling your credit score to help determine how much you’ll be paying in your insurance premiums. Simply put, your credit history helps them predict how likely you are to put in a claim. For instance, with auto insurance companies there seems to be an increasing correlation between how responsible people are with their money with how responsible they are on the road. Granted, a good credit score may only save you $15.00 here and there, but over time this can add up to a lot of money.
In lay men’s terms, the three little numbers that make up your credit score can not only determine how much interest you’ll be paying on a loan, but whether or not you are approved for borrowing money.
If you’re not sure what your credit score is you’ll be happy to know that you are allowed one free from each of the three main credit bureaus each year.The first step in building a healthy credit history is knowing where you stand - click here to get your annual report.