Understanding credit scores is helpful when it comes to important financial purchases throughout life. Your credit score is an estimator for banks, credit card companies and other businesses. Credit scores determine how likely you are to pay back money that was borrowed. The higher the score is, the more likely lenders are going to let you borrow money. Having a good credit score makes it easier to get loans or lower interest rates. A credit score is all in your control, so understanding the value of credit early will assist in big purchases in the future.
What is a good credit score?
Credit scores generally vary from 300-850, but each company use different credit scoring models. According to an American credit reporting agency, Equifax, a good score is between 670 to 739. An excellent score is anything over 800. Sometimes there are different scores for all types of categories. You can have more than one score for a variety of products such as mortgages, auto loans, insurance, etc. There are contrasting credit reporting sources which also has an affect on having more than one score. Each lender has their own perspective and you may qualify for a lower rate with one lender and not another.
Understanding Credit Reports
The credit scores are based on the information that comes from your credit reports. The information is reported from creditors on how you have used credit in the past. These variables are what can affect the score such as the amount of credit accounts, how long you have had each account, late payments, etc. Keeping track of your credit report whether you plan on borrowing money or not is still important. The more you know about your credit report and how it affects you financially, the more empowered you can be when it comes to costly decisions.
Why is having a good credit score important?
If you currently use credit or if you plan to apply for credit in the future, do your research on what credit account is best for you and keep track of the credit. In regards to financials in the future, your credit history is going to have an affect. To be eligible for the best interest rates when borrowing money, one has to make sure their credit score is good. This comes with responsibility, you need to pay bills on time, do not go over credit limit, and only apply for credit needed. Gaining credit earlier in life and opening different type of accounts is a smart choice for the long term. Again, the more experience you have with credit, the more likely lenders are going to let you borrow money!
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