Updated: Jun 7
Good morning Honeys,
How is your morning going so far?
With the current economic crisis looming, more and more people are worried about their debts. But what is a credit score and why does it matter when it comes to your future? The reality is that most people have no idea what their credit score is, nor how to check it. Considering that, the only time people are faced with dealing with their credit scores is when they have been denied for a loan.
Don’t forget to check out yesterday’s post explaining “how to read your credit report”.
What is a Credit Score?
Your credit score is what lenders use to decide if they would like to lend you money or not and at what interest rate. You will get a better interest rate based on how high your credit score is. This will range from a number between 300 (bad credit) to 850 (Great Credit). Most people fall somewhere in the middle.
Why does your credit score matter?
Your credit score matters when you would like to get a car loan, mortgage, or credit card. Companies use this score to figure out if you will be a reliable client for them based on your payment history. The longer your credit history, the better your score will be.
For instance, if you pay off your credit card in full every month and on time, your credit score will be lowered because you’re not profitable to the lender. But If you only pay the minimum payments on your cards and you are carrying a balance, then your credit score will be higher.
The problem is that most people who carry balances on their credit cards are more likely to be ruined financially by debt. Since most lenders see you like a number and they will give you enough credit to drown you. Which is why so many people are overextended financially.
How is your score really calculated?
If you’ve ever applied for credit, you know they ask the same questions every time.
Most people are tempted to lie about their age on the credit application. Don’t do it! They already know your age; they just want to make sure you’re not a liar. Under 21 no points for you. Between 24 to 64, you’ve got yourself some point (prime working age). Over 65 no points for you (you’re too old).
Your Marital Status:
If you’re single, sorry no points, you need a partner to take care of your debts, if something happens to you. If you’re married, then give yourself some points. They don’t care if you’re divorced, so don’t worry.
Where you work is super important, the length of time you’ve worked there, and how much you make per year. If you have less than one year at your job, then no points for you. From one to three years, give yourself some points. Over five years, then give yourself some more points you’ve earned them.
Where you live:
If you live with your parents or at a trailer park then no points for you, sorry you're too high of a risk! If you rent an apartment, then you good girl! Since you might be responsible, give yourself some points. Have a mortgage, wow, give yourself some more points, and even extras because someone else trusts you to pay back a lot of money.
The number of dependants:
If you have no kids, no points for you! If you have one to three kids, then good job, you’re reliable, you get points. More than three children, have you no self-control? No points for you.
The more educated you are, aka the more student loans you have, the more points you will get, to borrow more money than you can make in your lifetime. Lenders will take into account what you're studying to lend you money before you even graduate. It’s your future earning potential baby.
If a low credit score was the be-all and end-all of getting a loan, then most people wouldn’t be in debt. But with so many third-party lenders popping up, people can get credit from the grocery store at checkout.
Tomorrow we will be covering Interest rates, that's how they get you.
TTYL and by the way…Have a great day