Importance of a Good Credit Score

Type in the words “credit score” into any major search engine and you will quickly realize that knowing your credit score – and improving it – is big business. There are a number of companies out there that specialize in teaching individuals about the importance of their credit score.

In truth, your credit score holds a much larger influence on your life than you may realize. Credit scores are hard to escape and will be with you throughout your life. This will influence the interest rates you pay on purchases through to approval for major loans such as a home loan. Once you realize how important your credit score can be for your financial portfolio and lifestyle, it’s integral that you take steps to understand and improve it as much as possible.

Your credit score is your financial report card. Whether is good or bad, any financial document under yoiur name is going to impact your credit score. Conversely, if you are just starting out and have few financial documents with your name associated with them, you might have a lower credit score simply because you do not yet have a strong credit history.

Credit cards can be either your best friend or worse enemy with your credit score. If you are young or just starting out independently, it is often recommended that you secure a credit card to begin your credit history. By establishing a low-interest, low limit credit card, you can start to build a strong credit history by paying off your bills each month. In addition, putting your name on the utilities or establishing a good record of payment with your rent or mortgage can also increase your credit score. When you apply for a credit card in the future or wish to lower the interest rate on your current credit card, your credit company will first look to your credit score and payment history. If both of you have a good credit score then you are likely to benefit from a lower interest rate.

However, if you have been behind on payments or have excessive debt on the credit card, you might be turned down due to a lower credit score. It’s important to understand that using a credit card wisely can help you, but taking advantage of the credit card debt will destroy your credit score in the long run, affecting numerous future financial purchases.

When you go to buy a home, for example, the bank providing the home loan will consider your credit score before approving your loan or giving you a lower interest rate. In addition, if you plan to purchase a new car in the future, the car loan amount will also depend on your credit score.

Take charge of your financial future by analyzing and understanding your credit score and how much it can change your life.