What are credit scores?
These number dictates whether you’ll be getting a car, a new loan or a home. As society has become dependent on credit in purchasing pretty much everything, a good credit score is to be maintained to get a new loan to sustain the need of a continued purchase to live comfortably.
JUSTIN PRITCHARD of The Balance says,”A credit score is a number that evaluates and rates your creditworthiness based on your credit history. Lenders use credit scores to decide whether to approve someone for a loan or credit card, and to determine what interest rate to charge.
Other companies might use your credit score as well, for purposes of determining whether to rent you housing, offer you a job, or how much to charge you for auto insurance.”
He also added,” A credit score is a number that falls in a range from about 300 to 850.1 “Good” scores are considered to be in the 600 range. You have a better chance of being approved for loans at more favorable terms when you have a higher score.”
There are three credit reporting agencies in the United States: Experian, Equifax, and Transunion. They report and store individual’s credit histories and use main evaluating factors such as payment history, what you owed, the types of credit you had, etc.
Some lenders create their credit scoring scheme, but the commonly used credit scoring models are FICO® and VantageScore®. These credit bureaus use automated scoring models to generate individual credit scores.
Louis DeNicola of Experian explained, “FICO® creates different types of consumer credit scores. There are “base” FICO® Scores that the company makes for lenders in multiple industries to use, as well as industry-specific credit scores for credit card issuers and auto lenders.
The base FICO® Scores range from 300 to 850, and FICO defines the “good” range as 670 to 739. FICO®‘s industry-specific credit scores have a different range—250 to 900. However, the middle categories have the same groupings and a “good” industry-specific FICO® Score is still 670 to 739.
He also stated, “For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750.”
Liz Weston of Nerd Wallet says, A quick tutorial: Most people don’t have one score; they have many, and the scores change all the time.
Your scores also differ based on the scoring formula used and which of the three credit bureaus supplied the information used to create the score. If you want to track your credit score progress over time, monitor the same type of score from the same bureau.
You don’t have to pay for a score; you may be able to get a FICO or VantageScore for free from your credit card issuer or your bank. Financial sites such as NerdWallet also offer a free credit score, typically VantageScore 3.0, which measures the same behaviors that a FICO does,” he added.
Why Are They Important?
Your eligibility to purchase a new car, new home, new credit, or a new loan depends on your credit score. It also does influence the interest rate of your purchase. The higher your credit score, the better. It denotes a lower interest rate.
Your credit score reflects your personality and ability to repay your debts on time.
Your score will dictate how and what type of house or car you can get. If you don’t have good credit, the lender will think it’s risky to give you a loan and can decide to reject you instead. Low credit scores will cause your application to be disapproved.
Liz Weston of Nerd Wallet says, “Your credit scores determine a lot more than the loans you can get and the interest rates you pay. Insurers use credit scores to set premiums for auto and homeowners coverage. Landlords use them to decide who gets to rent their apartments. Credit scores determine who gets the best cell phone plans and who has to make bigger deposits to get utilities.
Credit scores are a financial tool, in other words, but whether they’re a lever or a hammer depends on how good they are.”
Credit Checks for Employment.
There are lots of employers or companies who do credit checking before they hire the applicant. Again, this is why it is vital to have a good credit score as it represents discipline and responsibility, thus makes you more hireable in the job market.
The same goes for business start-ups or entrepreneurs. Acquiring a loan will require a good credit standing. Many people have dreams of starting their own business. Most business start-ups require a sizable amount of cash that you might not have available. In that case, you’ll need to obtain a small business loan. Among other things, you need to have good credit to qualify for a business loan.
“You Need Good Credit To Live Comfortably. Since your credit is defined by how you’ve paid (or not paid) your bills in the past, many businesses—landlords, mortgage lenders, utility providers, and even employers—use your credit to predict your future financial responsibility. Anytime you need to borrow money, finance an essential item, or set up services, your history of paying bills (your credit) is called into question,” Latoya Irby said.
She also said, “You Need Good Credit To Live Comfortably.Since your credit is defined by how you’ve paid (or not paid) your bills in the past, many businesses—landlords, mortgage lenders, utility providers, and even employers—use your credit to predict your future financial responsibility. Anytime you need to borrow money, finance an essential item, or set up services, your history of paying bills (your credit) is called into question.”
This is why your credit report must be checked on a regular basis. It should not contain any errors or negatives to reflect you poorly. Else there will be lots of issues that will stop you from your goal.