What is the credit score and how can it affect your life? Having a stable financial life and planning your personal finances means more than just making a budget. It also means cutting your expenses. You must understand many other things deeply to plan your finances properly. One such aspect of personal finance you should never miss is the credit score.
Many people don’t know about credit scores. So, they don’t know their importance and effects. But, when you try to buy a house or apply for a loan, the credit score becomes crucial to 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.
Table of contents
What is a credit score?
A credit score is a three-digit number. It helps lenders decide on your loan, credit card, or mortgage eligibility and interest rates. Essentially, it summarizes your credit risk. Lenders use this summary before providing 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’re riskier to the lender due to your credit score and ability to repay, then the lender may charge a higher interest rate. In the worst case, they might reject your request. But in some cases, you might not need a credit score check. For example, for jewelry loans provided by jewelry buyers who also resell 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.
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.
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. If your credit score is high, like above 700, the lender might offer you an interest rate of just 3.307%. This means that you only have to pay $877 each month.
But if your credit score is 600 to 640, the lender might offer you an interest rate of 4.869%. In this case, you have to pay $1,061 per month. So, from this example, it is clear that a lower credit score costs you $184 more. This is why everyone should work to keep 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?
Payment history
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.
Amount owned
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 affects your credit score. That’s why you should always track the amount you owe. Keep it minimal or manage it well.
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 watch. Even if you’re used to jewelry loans from companies that also sell diamond jewelry.
Conclusion
A credit score can make or break your dream of getting a loan or owning a house. So, you should know all about credit scores in detail. 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.
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