About credit score
When someone uses a credit card, essentially what that person is doing is that he/she is borrowing money that they plan to repay after a given period. A credit card score is a way to determine the likelihood of the individual paying back the borrowed money on time.
There are credit bureaus that issue the credit score of individuals by implementing different evaluation schemes. The agencies decide to concentrate the data contained on your credit report. There are however some key issues that they consider while calculating the credit score of an individual. These include the credit payment history, the duration of the credit history, the current debts, the type of credit as well as the rate at which one applies for new credit. It should not be a surprise to you when you get slightly differing results on your credit score from different credit bureaus. Remember each is using a different a different evaluating scheme even though the credit report being used may be same.
You will come across a familiar term, FICO score while referring to your credit score. These two words are synonymous. FICO is an abbreviation that stands for Fair Isaacs Corporation, the guy who created the credit score calculating software.
Various creditors will have a differing rating for an individual. For instance, Visa may give you an R1 rating. At the same time, MasterCard may give you an R5 rating in case you have been postponing repayment of your MasterCard bills over many months. Although the “R” and “I” systems are still being utilized, the FICO system is seen as the best option in having a standard mechanism to get the individual’s credit rating. Nevertheless, in the “R” and “I” system, R0 or I0 implies that you do not have sufficient credit history for an accurate future risk prediction to be made. The rating could also imply that you are new to the credit system. R9 or I9, on the other hand, means that you have an appalling debt which is uncollectible. You can refer from the credit bureaus websites to learn more about this rating.
Effect of credit card scores on an individual
Your credit score plays a very central role in your financial journey. It matters to you as it will affect various aspects of your life. In this article, we explain how it can impact your life.
Determine if you will be approved for credit or not
When making an application for a loan, be it a car loan, a mortgage, or any other loan type, your credit score will be an important deciding factor whether you will be approved or not. When a lender gives you money, he or she expects the money back. However, if your credit scores state otherwise, they will hesitate to give you the money. There are loans that you can get if your credit score is low but one thing for sure, you do not plan to depend on pawn shop loans, payday loans or some loans with outrageous interest rates just due to the credit risk involved.
Is an influential factor on the interest that you will pay
Are you planning to save money? Having a healthy credit life will assist you to get the best terms and rates. Similarly, if you have a high credit score, you will pay less interest per month and overall. The idea sounds simple, but it’s an interconnection of trust factors on the side of the lender. If the credit rating is low, the credit risk involved in giving you a loan is high. In such a case, higher interest rates are usually imposed.
Are you aware that a person with a credit score of 650 and gets a $ 400,000 mortgage to be repaid within 30 years will pay $ 70,000 more than an individual who has a credit rating of 750? The difference is quite huge. You can thus see that your credit score is influential in either saving you or costing you your hard earned money.
It affects the chances of you getting a better place to live
A shelter is a top basic human need, and your credit score has an impact on whether you will get a house or not. The manner in which this plays out is as follows; most landlords do confirm the credit score of their tenants as they carry out the rental application process. Most of these landlords do not accept the tenants that have a bad credit score. Whether you have plans to purchase house, the same will still apply. Qualifying for a mortgage is tough if your score is not good. Whichever the case, having a healthy credit life will go a long way in having an impact on you as you try to get a house. Finding shelter is one of the realities that should positively influence you in getting your credit score in order. Who doesn’t want a house?
Has an impact on your relationship life
The 2014 Nerd Wallet analysis shows that an individual’s credit score affects his or her dating life. Most people would not like to date a partner whose credit rating is bad. The young adults want to date someone with whom they can grow financially stronger. They will not consider the relationship much if you appear that you may hold them back.
Now that you have realized a good credit is an important deal breaker, you are probably wondering what to do next. Here are a few words of wisdom: timely pay your bills, do not get too much credit that you may not be able to pay back as required, run away from credit card debts and do not postpone any if you have. Get your credit reports at least on a yearly basis. If there is an error or mistake, correct it as fast as you can. Follow these simple tips and find yourself on the road to financial and academic success in your life.