Question Is a credit score important?
Complete Answer A credit score is a numerical value based on the information contained in your credit report which is a detailed report of your credit activities. Your credit score, also known as your FICO score, tells a potential lender your credit worthiness, the likelihood that you will pay back a loan. The higher your credit score, the more likely you will pay back the loan, less risk for the lender. Conversely, the lower your credit score, the less likely you will pay back the loan, more risk for the lender.
Credit scores are important because they are used:
- To determine if you will be granted credit for a mortgage, car loan, credit cards, et cetera and the interest rate that will be charged. Generally, the higher your credit score the lower the interest rate.
- To determine if and the amount of a down payment and/or security deposit will be required for an apartment rental, cell phone purchase, et cetera.
- To determine the cost of insurance; car, renter’s, or home owner’s. The higher your credit score, the lower cost of certain types of insurance.
- By potential employers who may view a poor credit score as an indication that a person is living beyond their means which could negatively impact your ability to get a new job.
If you follow the three most critical elements of Financial Literacy, knowing your income and expenses, living below your means, and saving, you will have a respectable credit score.
Please Note: You should get a credit report at least once a year and review it for accuracy. The three major credit reporting agencies are Experian, TransUnion, and Equifax. You are entitled to receive a free credit report once a year from each agency.
Contact Information: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281; www.annualcreditreport.com; (877) 322-5281.
Financial Literacy Knowledge/Skill
A credit score is important not only because it is an indication of your credit worthiness, but is used to give some indication of your ability to manage your finances in a responsible manner.
Comments or Questions
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Next week’s topic: What banking services do you need?