Wednesday, 26 July 2017

Credit 101 - What is a credit score? Why is it important?


Used with permission from cafecredit.com

It's time to talk credit scores.

I know it's not the most fun of topics, but I believe it is one of the most important.

First, what is a credit score? A credit score is a numerical score between 250 and 850 that can be used by banks and other lending companies to see how good you are at paying back debt, whether you maintain a good standing with your existing debts and to assess your overall creditworthiness. A person with a higher credit score represents a lower risk individual. These are the people that get the best rates on large-scale loans such as mortgages.



What represents a good score? Credit is a sliding scale and can be broken into distinct groups from poor to excellent. Fair Issac Corporation (FICO) provides one of the best-known pieces of software used to calculate your score. This little number can make a big difference in interest rates, credit given and even whether you qualify for a loan at all, so it is handy to keep an eye on your credit.

Let me give you an idea of what I mean:

From a relatively young age, I had it drilled into my brain that I had to be careful with my money, always pay debts and take care of my credit score. By 18 I had a credit card and my parents were again telling me to take care of how I used it. I was starting to build my credit and mistakes now could become a problem in my future. I was also told they wouldn't bail me out, so there was a bit of added incentive. Keeping to this strict use of credit, paying off my education loans quickly (almost immediately) and continuing to stay ahead of my payments kept me in (what I thought was) pretty good standing. When Husband and I sat down with our mortgage advisor, he asked if we had any idea what our credit scores were. Turns out all that hard work paid off - we were both in the "excellent" range which allowed us to buy an amazing little starter home (the one in my banner) and get a fantastic mortgage rate.

I will be continuing this series over the next few weeks, talking about what makes up a credit score, common credit gaffes, and credit-building myths.

Is there anything you would like me to cover on credit? Let me know in the comments section!

~A

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4 comments:

  1. This is super useful. As someone who likes to not look at bank statements (especially the credit ones) I think I need to get looking at things more carefully. And actually find out my credit score!

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    1. It isn't the most interesting stuff, but it is important to know. Glad you found it useful, Vanessa!

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  2. I really like whenever you write. This kind of work is really praiseable thanks for sharing..How to Rebuild Credit

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