Whether you want to apply for a new credit card or get auto insurance, you might have heard about the benefits of maintaining a high credit score to get the most out of these actions. But if you are new to borrowing or managing your own money, you might wonder what your credit score means and how it affects your finances.
Here’s the good news: Understanding the ins and outs of a credit score and its effects is not difficult. You only need to learn a few basics to see how it influences your finances and what you can do to manage it on an ongoing basis.
To help you with this process, here’s a quick overview of credit scores and their effects.
What is a credit score?
A credit score is a figure that outlines how good your credit history is on file. Your credit score is calculated with factors like your total debt, your monthly repayments, and your habit of settling your overall debt. A credit score usually refers to a FICO score that ranges from 300 to 850. A credit score below 580 is considered “very poor,” while a credit score above 670 is considered “good.” The higher your credit score, the better deals you can get to navigate financial challenges.
How do you find your credit score?
You can find your credit score by checking it through a credit bureau or similar service. Once you find your credit score, you can determine if it falls above the “fair” range, which falls between 580 and 669. This can help you figure out if your credit score is good enough to live a comfortable life or if you need to improve it before you can get benefits on loans, lending, and insurance. This saves you from shooting in the dark and lets you make informed financial decisions.
How does your credit score affect your future?
Your credit score can affect your future in a variety of ways. Whether you use a planner journal or a goal app, you need to make sure that your credit score doesn’t keep you from reaching all of your biggest life objectives.
It makes it harder to borrow money
First and foremost, your credit score is a big factor in convincing lenders to approve your loan applications or credit card requests. If you have a low credit score, your bad credit can affect your future by preventing you from getting the financing you need. But if you maintain a high credit score, you can breeze through credit approvals in no time.
It makes borrowing more expensive
Even if some lenders approve your loan applications with a low credit score, they wouldn’t do so without protecting themselves. For lenders, this protection comes in the form of charging you higher than usual interest rates. This can make loans expensive and cause monthly payments to hit the funds in your traditional or online savings account that you use to safeguard your future.
It can get in the way of your housing
Apart from loans and credit cards, a bad credit score can also block your path to your ideal home. Besides making mortgages difficult or more expensive to get, it can also scare away landlords who check your credit history. To reach your homey buying goals or meet your renting requirements, you need to maintain your credit score at a higher level.
It can increase your insurance premiums
If you want to get auto insurance, a good credit score can get you more favorable rates. But if you apply for car insurance with a bad credit score, you can expect to pay higher than market prices for your insurance premiums. This adds to the growing list of reasons to maintain a good credit score to secure your future.
How do you improve your credit score?
Whether or not you use a budgeting journal, you can improve your credit score through the following practices:
- Make your monthly payments on time.
- Repay your credit cards and revolving accounts in full.
- Don’t deplete your credit card or revolving account balance.
- Settle loans as soon as possible.
By learning about your credit score and its effects, you can plan to secure your future ahead of time. This helps you build the life that you deserve with the financial support that you need.
