Why your Credit Score Matters

the ultimate buying power

Morning everyone!

Something that isn’t talked about enough is credit scores. I feel like it’s almost a taboo subject that can be hard to talk about with others, or at least in with the younger crowd. But today, I want to break that ice and show you why it’s important to check in and maintain your credit score.

What is your Credit Score?

A credit score is a three-digit number that assesses your “credit risk.” For example, before you get a loan or open a credit card, the lenders (or the people fronting you the cash) need to see how likely you are to pay them back.

They measure how risky you are in five weighted categories.

• Payment History (35%)

  your payment history is calculated by factors such as on-time repayment history, previous bankruptcies, collections, and delinquencies.

• The amount owed (30%)

  The Next largest Component is the amount you owe relative to the credit you have available. People who consistently spend up to or past their credit limit can be considered higher risk. Therefore, spending a lower percentage of your available credit per account is much better.

• Length of Credit History (15%)

  The longer you have open credit accounts that are in good standing. The lower your score will be. Logic dictates that someone who never missed a payment in 20 years will have a higher credit score than someone who has been on time for 3.

• New Credit (10%)

  Every time you apply for a credit card. It can indicate “financial pressure,” which will ding your score. Before applying, consider if it is worth a hit on your credit score. ( most times, its proaobly worth it as long as they’re a couple of months apart)

• Credit Mix (10%)

  Lenders like to see that you can manage different types of credit. Revolving credit, like retail store cards, gas station cards, and lines of credit. As well as installment credit. (Mortgages, auto loans, and student loans) both should be represented in your credit mix.

How having a bad credit score can make your life harder:

your credit score can affect you as you go about in life in some of the following ways:

• Loan eligibility:

  The most common is, Lenders check your score to see if you are eligible to be lent money. The larger the purchase (like a house), the higher the credit score needed.

• Interest rates on loans:

  If you have a higher credit score that makes you riskier than the next person, lenders commonly will raise your loan's interest rate, potentially costing you thousands of dollars more every year in payments.

• Employment:

  Believe it or not, It’s been shown that 47% of employers look at applicants' credit scores when they consider hiring them.

• Renting:

  Most Landlords will run a credit check before agreeing to any lease. Bad credit scores can lead to higher deposit amounts or even turning your application down.

As you can see, it’s pretty essential to be on top of your credit. You can get by for a while, not being too concerned about it, but eventually, it can come back to bite you.

Luckily, there are plenty of options for managing your finance. I use Credit Karma, and it works great for everything I need. But there are plenty of options out there for you to pick from.

I hope everyone can take something away from this post and better themselves financially. Be sure to share with a friend who could use a little motivation to get on top of their credit and have a great day :)

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