The Importance of Your Credit Score

Every person that is over the age of eighteen in the United States has a credit score. Everyone has a social security number; this number is tied to the credit history. When a lender or company wants to assess a person’s credit score, the only things that the person needs is a name and a social security number. Social security numbers rarely are changed unless a person becomes a victim of identity theft so the system allows people to go from place to place and still have all of their financial information in one place. Here is some information on why a credit score is important.

How Is a Credit Score Calculated?

A credit score can be as low as 300 and as high as 850. A person with a credit score of 720 or higher is typically deemed to be a low credit risk to lenders. A credit score depends on the amount of debt a person has, the amount of the credit lines exhausted, the number of open accounts, and the number of missed payments and delinquent accounts.

There is no specific formula that each of the three credit bureaus use to come up with a person’s credit score. This is why a consumer can have one credit score at one credit bureau that is higher or lower than the score at the next credit bureau.

Potential Lenders and Companies Will Look At Your Credit Score

Whenever an individual applies for anything from a bank loan, mortgage, personal loan, cell phone, apartment, or other item, their credit history is pulled as well as their credit score. The overall score is a major factor in whether or not the action is approved. For example, if a person has a low credit score then a cell phone company might not issue them a contract and if they do, they might require a deposit for service.

The interest rate that a consumer is assessed on their loans and credit cards weighs heavily on their credit score. This is why it is important to have at least a credit score of 620 before applying for most loans and credit cards. Most lenders and financial institutions look at the 620 score as a jumping off point for negotiations. They reward people with lower interest rates as their credit score increases. This can save people a lot of money in fees.

A Credit Score Speaks Volumes

A credit score speaks volumes about how fiscally responsible a person is. Where financial transactions are concerned, people want to minimize the risk that the borrower will default on their financial obligations. This is why even having a high household income with a bad credit score means that a person will often be denied for lines of credit such as credit cards.

Now many employers are asking to access a job applicant’s credit score. Many jobs that deal with money on a daily basis require a person to be responsible for handling cash. If an employer sees that an applicant has a bad credit score, then they may be hesitant to hire them. Many landlords now do credit checks on potential tenants. They do not want to take a risk if a tenant might not pay their rent on time each month, so they review the credit scores to find a desirable tenant.

In conclusion, a credit score is something that an individual cannot escape. It increases and decreases all the time. It is important for consumers to pay their bills on time each month and try to reduce their outstanding debts as soon as possible. This will help them to have a good credit score that will save them money on interest fees and will give them more opportunities to secure the lines of credit that they need.