The term credit score is often heard when it comes to finances. Even buying something as simple as a plan for your cellphone can involve your credit score. Knowing what this seemingly vague report is and how it can affect your life is important when trying to maintain financial stability, investing in property, or starting a business. Not only will this give you an advantage when it comes to different aspects of your adult life, but it is crucial to have a general awareness of this.
1. What is a Credit Score
In the simplest terms, a credit score is a kind of a rating that is based on all of your finances including how much income you receive, your debts, and repayments. Based on these different factors, you get a credit report which shows what score you receive starting from 300 to 850. This score can facilitate or hinder different aspects of your life since it basically shows how trusted you can be to pay back any debts that you may incur through financial ventures.
Your financial decisions from you were 18 until you grow very old are going to affect your credit score significantly. Taking out loans, getting a mortgage, or being late to make payments on bills that you should pay will decrease your credit score. The higher your credit score, the better.
2. What Shows on a Person’s Credit Score
As mentioned above, there are different factors that affect your overall score. Basically, you get your score based on a credit report that is issued from credit bureaus that keep a financial record of your debts and credit differences. You can request your own credit report that shows how creditworthy you are in the eyes of any entity looking at your finances. Some of the things you will find in your credit report include your personal information, credit account history, and inquiries made by entities about your credit score.
Believe it or not, the more entities that inquire about your credit score, the lower it gets because this shows that you are facing financial issues of some kind. You are probably wondering how credit bureaus get all of this information. These details are reported by creditors and lenders to the bureaus responsible for tracking your credit.
3. How Does it Affect Finances
Your credit score is directly linked to your finances since your financial decisions affect it directly. It also affects future financial ventures including investments, potential loans, and interest rates. The lower your credit score is, the worse interest rates you will have to settle for so that potential lenders consider you as an option. A low credit score also increases your chances of getting rejected when applying for a loan through a bank since banks do not take risks.
Likewise, if you want to buy a home, then your credit score will determine how creditworthy you are when figuring out how much mortgage you can pay. Basically, your credit score can make it much harder to execute your financial decisions.
4. Margin of Human Error
Sometimes you may get lucky and have a higher credit score than you think you actually do. In fact, because of the factor of human error involved in keeping up with your credit history, Dallas News suggests that errors are sometimes made that give you a disadvantage when it comes to your credit score. Filing for such a change in reports for yourself can be difficult but still doable. This can make a big difference in your overall score so it is worth pursuing if you believe that you have been wronged.
5. How to Improve Credit Score
After knowing how bad of a situation a low credit score puts you in, you do not have to despair since you can improve your credit score. There are many ways to get credit repair for future ventures. First and foremost, you need to make better financial decisions. For example, you should not take a loan if you are unsure whether you will be able to pay it back fully within the set timeframe.
Furthermore, any bill or debt payment needs to be on time to ensure that future lenders can see for themselves that you can be trusted. You should also stop applying for more than one loan and definitely keep your lenders minimal to ensure that the requests for your credit score are not high.
Being aware of your credit score as well as your credit history is crucial nowadays. This knowledge will ensure that you know where you stand financially. It also gives you an idea about whether you are going to be rejected by lenders or companies that you are trying to have a sales contract with such as cell phone companies or car dealerships. Now that you know what a credit score is, you can be more careful and work on keeping it high.