The word credit score is only associated with taking out a huge loan for many people, while others have never heard of the phrase before. The truth is, credit scores are soon going to affect so many parts of your life, so it is best if you stay informed. If this is your first time hearing the phrase credit score, you are not alone and, there is time to learn. Your Remax Home Team is here to tell you what a credit score is, how to calculate one, and why it is important to you.
Are Credit Scores and Credit Report One Thing?
Most people use credit reports and credit scores at the same time. While they might have some similarities, they are two different things and should be treated like that. A credit report contains a list of debts you have borrowed in the past, how fast you repaid them and if you defaulted any of them. It also shows how much open credit you can get. The credit report is what lenders will use to calculate your credit score and determine if they can give you a loan. These are some of the details that will be used in your credit report:
-A history of the debts you took and how you repaid them.
-Bills affiliated with a collection agency, such as medical and utility bills that you have not paid.
-Public record information like tax-liens or bankruptcies that you filed.
-Inquires made by previous lenders into your creditworthiness and the outcome of the inquiries.
You have a right to review your credit report occasionally, and it is recommended that you do so before getting a lender. It will go a long way to spot out any inaccuracies and have them rectified. The law gives you the right to access your credit report from three different governing bodies in the country every 12 months.
While a credit report shows your borrowing and paying back habits, your score is a number calculated based on these facts. Your score can improve or get worse based on your spending habits. A credit score runs from 300 to 850. Here are a couple of things that will determine your credit score in the long run.
-Your loan and debt payment history. Paying your loans on time ensures you get a better credit -score while late payments lower it.
-The total amount of debt you owe, including car loans, credit-cards, and student loans. If your credit cards are maxed out, you will most likely get a lower credit score. Your score will be lowered, even if the card limit is not that high.
-How much you have used credit and how well you handle it- If you have a credit card that you use for a while, staying with the card’s limits without maxing it and always paying it back on time ensures your score goes higher.
-The number of times you have applied for a credit card. If you have applied for more than one credit card at a time, chances are you will lower your credit score.
Understanding how the credit score is calculated will help you know what you need to do to keep it high since there are perks that come with it. The good thing with a credit score is, you can improve on it and get a better credit score.
Importance of a Good Credit Score
Over the years, the term credit score has been thrown around so many times. There is the assumption that it is not all that, and the word is overused for most people. While you might choose to think about it that way, some perks come with having a good credit score. Knowing about it will help you stay vigilant:
Helps With Insurance Rates
Your credit score will come into play whether you are getting your car insured or trying to get a homeowners insurance policy. The higher your credit score, the better insurance policy terms you will get. Insurance companies usually have an insurance score that is mostly based on your credit score and the condition of the item you want to be insured. The better your score, the better terms you will get.
It Helps With a Credit Card and Loan Approval
The most important thing a loan company will look at when giving out a loan is your credit score. This is the single biggest factor to help you qualify for a home loan. The reason behind this is, your score is an accumulation of how well you spend your money and your ability to pay it back. Banks and lenders have the last say on whether or not they feel like you deserve a loan from them. You might try to appeal for a review, but if your score is bad, chances of getting the loan are slim to none.
It Helps When Trying to Get a Higher Credit-Card Limit
You will know how to grow your limit if you possess a credit card, although it will be over time. The initial amount of money they let you use before you reach max is often determined by your current credit score. The more you improve on it, the higher the limit on your card. If your credit score drops, then there are high chances of your credit card limit dropping.
Your Score Affects Your Utility Bills
It might come as a surprise to you, but many companies look at your credit score when they are trying to determine your utility bills. In case you are late on your electric bill, electric companies usually give you a month before they suspend their services to you. While this is a possibility, the grace period is not guaranteed and will be determined by your credit score. It goes without saying that a good credit score will guarantee you the grace period to sort out your bills.
Business Loans Require a Good Credit Score
If you have started a business, then you know how hard it is to get things moving. A business loan would really come in handy for you. Since you are starting a new business, you do not have assets yet, and the lenders will look at your credit score to determine if you deserve a business loan or not.
It Comes In Handy When Job Searching
One of the controversial areas where credit scores come to play is when applying for jobs. If you work in finance, chances are your potential employer will want to look at your credit score before offering you a job. All this is done with your consent, so no need to worry about a breach of privacy. The reason employers do this, especially in finance is, they want to know they can trust you with their money. Someone with bad personal finance habits might not handle the company’s finances well.
Money determines the quality of life you live and what you can access. It should go without saying that in order for you to live a good life, you need to be responsible for your finances. A good credit score is one way to start. By knowing where you stand, you can put measures in place that ensure you improve on your credit score. The good thing is, getting your score better is something you can do by following some simple and easy steps. Contact your Remax Colorado Springs agent Tommy Daly for more information or questions about Credit Scores.