What is the credit score and how can it affect your life? Having a financially stable life and planning for your personal finances doesn’t only mean; making a budget and shortening your expense list. You must understand many other things to their core for planning your finances properly; and one such aspect of personal finance that you should never miss is the credit score.
Many people are not aware of the credit scoring system, and therefore; they don’t have any idea about the importance and effect of credit scores. But the moment you attempt to buy a house or apply for a loan; the credit score becomes the most crucial aspect of your life.
So, let’s understand all you need to know about credit score and how will it affect your life in this blog post in detail.
What is a credit score?
A credit score is a three-digit number system used by lenders to decide whether you are eligible for getting a loan, credit card, mortgage and what interest rates should be applied in your case. The credit score is like a summary of your credit risk that lenders always check before giving you any financial benefits.
How is credit score affected?
Every individual in life has his credit score, and his financial actions directly affect the credit score. Even after marriage, both you and your spouse will have a different and individual credit score. And if you are a co-signer of a specific type of loan, then both scores will be analyzed before the approval process.
If you are riskier to the lender based on your credit score and in terms of being able to repay, then the lender may go for a higher interest rate; and in the worst-case scenario, they might reject your request directly. But in some cases, you might not need a credit score check like; in the case of jewelry loans provided by jewelry buyers who also deal in the resale of diamond jewelry.
The credit score ranges from 300 to 850. When it comes down to a final decision on the interest rate; then you should always look forward to maintaining a good credit score as it gives you better terms for credit.
Also Read: How to Improve Your Credit Score?
How to know my credit score?
A credit score is not something that you can get by doing a little bit of calculation since it deals with your entire financial history. Therefore, if you want to know about your credit score, then you can call at (877) 322-8228, or you can visit www.annualcreditreport.com.
Also Read: What is a Good Credit Score – CIBIL Score
How can credit score affect in our life?
Let’s guess that you are applying for a fixed mortgage of $200,000 at a fixed rate and that too in the form of a thirty-year mortgage. Now, if your credit score is high, like above 700; the lender might offer you an interest rate of only 3.307%; which means that you only have to pay $877 monthly.
But if your credit score is between the range of 600 to 640, then the lender might allow you an interest rate of 4.869%, and in this case; you have to pay $1,061 monthly. Hence, from this example, it is evident that a lower credit score costs you $184 more; which is the main reason everyone should work towards maintaining a good credit score.
With a low credit score, you are paying $66,343 for the same mortgage over the entire period, and that’s a lot of money.
What helps and hurts your credit score?
This is the track record of how you have paid back your loans and whether they were paid on time or not. Different public records like suits, liens, bankruptcies, and even wage attachments are considered for payment history. The more satisfying your payment history, the more trustworthy your credit score will be.
This shows the level of debt you are currently dealing with, and it keeps on determining whether you can manage what you owe or not. This is another factor that directly affect your credit score in your life; and that’s why you should always keep tabs on the amount you owe and keep it minimal or manage it properly.
Type of credit
This is the mix of credit you access. It includes retail accounts, credit cards, finance company accounts, and even installment loans. This is another crucial aspect to keep tabs on; even if you are used to jewelry loans provided by companies; that even deal with the resale of diamond jewelry.
A credit score can break or make your dream of getting a loan or owning a house, and therefore; you should know everything related to credit score in a detailed manner. By keeping a high credit score, you can harness the power of many financial benefits that you might apply for in the future in your life.