What Does Your Credit Score Mean
You may already know that your credit score plays a big part in your personal finances but at the same time, might also wonder what it means.
You might have questions like:
Who decides what your score is?
How does it affect your daily life?
What things can make it go up or down?
All of these are good questions and it’s easy to go on with your life without actually looking for these answers.
When we are in the middle of a recession and the economy seems to get weaker day by day, it’s only logical to be concerned about getting the most out of your money.
You’ll never really be sure if you will have to dip into your credit line or put an unexpected purchase on your card.
This is why building (and maintaining) a good credit score is so important.
So what the heck does the term “credit score” mean?
Credit scores are a number assigned to you based on the measure of risk it would be to extend credit to you.
It is meant to be a way for creditors to measure how risky it is to extend credit to you.
The lower your score is, the harder it is to get a loan.
However, if you have a higher score, you will find it easier to get loans and to get better terms attached to those same loans. You’ll usually also benefit from a lower interest on credit cards, too.
Besides being able to get loan or not, and getting better terms, credit scores are more recently being used by utility companies, cable companies, insurance agencies, landlords and even potential employers.
This can affect your rates, whether or not you have to pay deposit to get service, or if you will be able to rent a place to live.
Anybody who has a legitimate need to see your credit report, and credit score can do so if they pay a fee to the credit reporting agency.
What are the elements used to calculate your credit score?
The largest thing calculated for your score is how well you have taken care of your credit and debt in the past.
Those who have a good payment history and have made all of their payments on time will have a higher score. On the other hand, those who have late or missed payments might see a lower score.
Needless to say, a missed mortgage payment is worse than a cellphone bill that’s a day late. While bankruptcy is the one event in your life that can have the longest lasting negative effect on your credit score.
Another prime factor in figuring out your score is how far back your credit history goes; the longer you have a history the better. This is why it is good to keep your longest credit card account open and active.
One of the last factors is the total amount of debt you owe. If your debt-to-income ratio is too high, it shows lenders that you will probably have a hard time keeping up with a new loan.
They are some of the first people that can catch signs of you living beyond your means ahead of time.
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