There are plenty of people who donâ€™t know their credit score, and wouldnâ€™t know what to do with it even if they did. This makes sense. Unless you learn or are told what credit scores are and how they function, they seem like a very mysterious thing. Why, after all, should someone be able to wrap up your life in a single, 3-digit score? The thing is, credit scores are important. They reveal important information about your financial life, information that companies use when they decide whether or not to lend you money. Credit repair takes time, but it can make an incredible difference in your life regarding how much youâ€™ll pay to borrow money, as well as other opportunities. Here are three important things to know.
- Credit Scores Are For Lenders. Any time you borrow money, you pay for the privilege. This is true whether youâ€™re getting a credit card at a department store or trying to get a mortgage loan at a bank. In either case, any credit you take out is going to cost money. Not only will you have to repay the money you borrow, youâ€™ll have to repay the interest and fees associated with the loan. This interest and fees are usually not set-in-stone. The amount of interest you pay varies according to your credit score. The higher your credit score, the more secure your finances appear to be from the perspective of a lender. They know youâ€™ll probably pay their money back, so they donâ€™t charge you so much. For people with low credit score, the chance of default is high, so lenders charge more money for them to borrow. People with low scores might be considered too risky to some lenders, and be denied a loan entirely.
- Credit Scores are Determined By Many Factors. Your credit score is determined by how timely your credit payments are, how much debt you have, how much of your available credit you use, and other factors. Think about it this way, lenders canâ€™t look into your bank account to see how much money you have, but the companies that create credit scores can look at your spending and borrowing behaviors to try to imagine how secure your finances are. Spend, saving, borrow responsibly, and chances are, your credit score will be somewhat high.
- Bad Credit is Expensive. As explained above, bad credit costs more than good credit. Over the course of a lifetime, someone with poor credit might pay tens or hundreds of thousands more, after expenses like homes and college educations are factored in. In this way, good credit people live â€œat a discountâ€. By correcting your credit now, youâ€™ll be setting the stage for lots of savings over your whole life.
Credit scores are important. They tell the financial world important information about your money, and they tell you what kinds of savings and opportunities youâ€™re likely to have. You should look up your credit score. If it isnâ€™t where you need it to be, it is correctable.