Your credit score is one of many factors that lenders use to determine how reliable you are with paying off credit – whether that’s a car loan, a mortgage, or a credit card.
Since this is such an important figure that needs to be managed, here are 5 things that you should know about your credit score.
1. Lenders judge how worthy you are to receive a loan by your credit score
When you’re applying for a loan or any form of credit, lenders are going to look at your credit score to determine whether or not you’re worthy to receive it.
If your credit score is bad, the lenders can act accordingly by disapproving your application. If your credit score is good, they’ll happily approve your application and give you the best deal possible – simply for the fact that you seem trustworthy based on your past loans dealings.
2. You need to have credit in order to get a credit score
In order to have a credit score, you need to have experience with credit and loans. However, you don’t have to jump straight into getting a mortgage to begin your credit history. You can start small by doing things like getting a credit card, and paying for things such as rent, internet, and power bills.
3. Your credit score helps determine your interest rates
Lenders will often charge higher interest rates for those who have a bad credit score, simply for the fact that they are a riskier client to deal with and have a bad history of not paying off debt. If you have a solid credit score, lenders will be happy to work with you and give you the best interest rates possible.
4. Your credit score can be effected by mistakes from others
Every now and then, a mistake will pop up on your credit report that can affect your credit score. Even though the mistake may not be your fault, it’s still up to you to fix the error. The error can come in multiple forms such as incorrect personal information, and debt that you owe that has already been paid.
5. There are multiple factors that determine your credit score
The most important aspects that determine your credit score are:
- Previous Loans/Credit Dealings: Whether you’ve payed your previous loans and credit and if they were paid on time.
- The Amount of Credit Owed: Whether or not you owe any money to lenders, as well as the amount of money owed.
- Time Length of Credit History: The more experience you have with paying off credits and loans, the better impact it has on your credit score.
- Credit Mix: Having different forms of credit from things like car loans, utility bills and credit cards looks better and improves your credit score.
Your credit score is going to play a huge part in your finances – both when applying for the big purchases like houses and cars as well as small things like utility bills and credit cards. For this reason, it’s important to educate yourself and understand the ins and outs of your credit score.