No doubt, credit scores play a crucial role in your financial life. From helping secure a loan to getting you the best interest rates, your credit score is an important factor in determining your financial health. But guess what? As of 2019, nearly 40% of Americans didn’t know their credit score, let alone whether it was strong enough to help them achieve their financial goals.
Related Article: 5 Ways to Protect Your Credit Score
If you’re someone who identifies with the 40% of Americans, it’s ok. We’re here to help. Knowing your credit score is important because it helps you understand how lenders view you as a borrower. It also gives you an idea of what kind of interest rate and terms you can expect when applying for a loan or other type of financing. It can also help you identify any errors or inaccuracies affecting your score, so you can take steps to correct them.
A credit score is a three-digit number that lenders use to assess your creditworthiness. It's based on information from your credit report, which includes details about your payment history, the amount of debt you have, and any other financial accounts you may have. The higher your score, the more likely lenders will approve you for a loan or other type of financing.
Think of it as a snapshot of your financial health. It's a way for lenders and other financiers to quickly assess how likely you are to repay a loan and how much risk they're taking by lending to you. So, before you apply for a mortgage, credit card, or other line of credit, the lender will check your credit score to determine if you're a good candidate.
Loan applications:
Your credit score plays a crucial role in determining your loan eligibility and the interest rate you receive on loans such as personal loans, mortgages, and car loans. A higher credit score usually means better loan terms and lower interest rates.
Credit card applications:
Just like with loans, your credit score also affects your chances of getting approved for a credit card,the credit limit you receive and the interest rate you can get. A higher credit score may result in a higher credit limit and better rewards, benefits and interest from the credit card issuer.
Renting an apartment:
Landlords may check your credit score to determine your financial stability and whether you are a reliable tenant. A good credit score may increase your chances of getting approved for a rental property.
Employment:
Some employers may check your credit report as part of the background check process. A low credit score may make it more difficult to get hired for certain jobs, especially in the financial sector.
Insurance rates:
Your credit score can also impact your insurance premiums. Insurance companies use your credit score as an indicator of your financial stability and risk. A higher credit score may result in lower insurance rates.
FICO and VantageScores are two of the most widely used credit scoring systems, and they both use the 300-850 range to rank credit scores. Essentially, higher scores indicate better creditworthiness, while lower scores signal that you need to put in a little extra work. But how high is high, and how low is low?
Here's a quick breakdown of good vs. bad credit scores according to FICO and VantageScores ranking systems:
The Key Takeaway: Having a bad credit score doesn't mean you're doomed to a life of financial hardship. It just means that you should take the necessary steps to improve it. Also, a bad score doesn't explicitly disqualify you from a loan or other type of financing, only that you may have to pay higher interest rates and fees.
Luckily, for anyone with a bad credit score, there are ways to improve it. Here are some of the best ways to positively influence what your credit score is:
Late payments can hurt your credit score, so it's vital to pay your bills on time. These include credit cards, loans, utilities, and other bills.
Make a habit of checking your credit report regularly for any errors or inaccuracies that could be dragging down your score. If you find any mistakes, dispute them with the credit bureau immediately.
Your debt-to-income ratio (DTI) is the amount of debt you have compared to your income. The lower your DTI, the better it is for your credit score. So, try to pay down as much debt as possible and increase your income.
Closing unused credit cards can hurt your score since it reduces the amount of available credit you have, as well as reducing your credit history. So to be on the safer side, keep your credit cards open even if you're not using them.
Every time you apply for a loan, the inquiry into your credit can have a negative impact on your score. The more inquiries you have, the lower your score. So, try to limit the amount of credit you apply for and ensure you only seek whatyou need.
Odd as it may seem, taking out a secured loan or opening a secured credit card may actually improve your score. These accounts are easier to get approved for and can help you build up your credit score in a relatively short time.
There you have it! Knowing your credit score is essential if you want the best terms possible on a loan or other type of financing.
And if you want to check your credit score anytime, mph.bank is the perfect solution. We offer a free credit score checker that allows you to quickly and easily access your credit score in a few clicks. Plus, we constantly provide helpful tips on improving your score and keeping it in excellent shape.