Yes, Your Credit Score Matters. Here’s Why.
A credit score is one of the most well known, and often least understood, barometers of financial health for millions of people nationwide. The credit history (or lack thereof) that is the basis of your credit score cannot be modified, erased, negotiated, or otherwise manipulated. It is wholly based on the the decisions you make regarding accruing debt and repayment.
Many people believe that their credit score is really only important for getting better rates on credit cards, but your credit score has a much larger impact than that.
Credit Score Vs Credit Report
It’s important to understand the difference between your credit score and a credit report, which is based on your credit history.
A credit report is exactly what it sounds like: a report that shows information about your credit history. It includes open credit card accounts and balances, loans, late payments, bankruptcies, etc.
When you apply for a credit card, a car loan, or a mortgage, one of the first things a lender will look at is your credit report. If it shows, for example, that you have always paid your bills on time, have never declared bankruptcy, and have don’t have excessive debt, there’s a good chance you’ll be approved and given a good interest rate.
Your credit score is a three digit number that is based on the information in your credit report. It’s determined by a mathematical formula that takes into account all the various aspects of your credit history. The higher the score, the better.
Different credit agencies use slightly different formulas, but the most common is the FICO score and it ranges from 300 to 850.
Credit Score And Insurance Rates
Many people don’t realize that their credit score can have a dramatic impact on their insurance rates. Everything from auto insurance to homeowners insurance can be impacted by your credit history.
Insurers often create an “insurance score” which is partly or largely based on your credit score, along with several other factors important specifically to the insurance industry. Having a bad credit score can mean paying hundreds of dollars or more a year in additional premiums. A good credit score often qualifies applicants for a discount.
Credit Score And Employment
While it may seem unrelated and controversial, it is becoming increasingly common for employers to check prospective employees credit scores before making a hiring decision.
Employers argue that a good credit history is a indication of reliability and responsibility. While the merits of that argument are hotly debated, and there are certainly cases where a bad score is the result of circumstances beyond an individual’s control, it’s something to keep in mind.
Improving Your Credit Score
If you want to improve your credit score, it’s important to know exactly what it is and what your credit history looks like first. The best way to check is to request a free credit report and carefully review what’s in it to make sure it’s accurate and that you haven’t been the victim of identity theft.
If your credit score and history are good, then you don’t have much to worry about. If it’s not as good as you would like it to be, consider making an appointment with an experienced financial planner and discussing ways to improve your financial situation and raise your credit score.
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