Having a good credit score can go a long way, as this number tied to your financial well-being will follow you for the rest of your life, impacting your chances of getting a loan, renting a place to live, or just working towards your financial goals.
Essentially, your credit score dictates how much your own money is worth and whether you’re a liability to borrowers if they approve you for a loan.
This applies to a number of things, and you may find that securing a financing plan for a car or even a home is impossible without a good credit score, meaning that you’ll eventually have to get a credit card, whether you like it or not.
High-risk borrowers have a low credit score and are generally turned down by most borrowers, forcing them into a situation where they can only get cleared for a loan through government programs, and even then, their shots at getting a loan are slim.
What is your credit score?
From the first dollar you borrow, the three major crediting associations will be tracking your ability to return credit as well as how long it takes you to do so.
Without this information, you don’t have a credit score, meaning that you’re technically required to have a credit card and make regular payments on it, regardless of whether you need one or not, for the sake of creating a solid credit score for yourself.
As absurd as this may sound now, it’ll come into play years down the line when you’re looking to settle down with your family and finance a home, and without a good score, no bank will clear you for a loan, due to the possibility of you not returning it within the contracted time.
How to improve your score
Plenty of factors go into scoring your financial habits, and in order to get the most optimal score, you’ll first want to know how the actual scoring system works.
One of the main things to keep in mind is your payment history, and you’ll be surprised to find out that every single dollar you’ve ever spent was accounted for, and your credit card payments are the most impactful.
By making regular payments, you’re setting a foundation for a great credit score to be built upon while also not piling on any interest rates that most have trouble dealing with years down the line.
That being said, it’s not all about how swiftly you can repay your debts, but also how much you actually owed and whether you were able to repay it within a given time, as this gives banks an insight into your financial abilities and reliability.
Staying under the limits
Even if you are using a credit card with no limit, it’s best to keep up appearances, and banks are much more likely to offer a loan to someone whose credit utilization is at or under 30% of their monthly limit.
A good way to figure out your credit utilization is to divide your existing debt balance by the amount you have available, meaning that if your limit is $10k, and you’ve already borrowed $8k, your credit utilization is 80%, which is less than desirable.
Keeping your spending under a limit allows you to present yourself as a reasonable and responsible spender, giving banks and borrowers more initiative to lend you money, as you’re not a liability but rather, a fairly profitable investment to them at that point.
Knowing when to spend and when to save is the key to financial success, and it all starts with your credit.
Buying a home
The most common question regarding credit scores involves one’s ability to buy a home since it’s one of the biggest financial milestones for any family.
In general, a score of 620 or higher will qualify you for a conventional loan for a home, whereas FHA loans require a minimum of only 580, meaning that there are still options for you out there, even if your credit score is below the average number.
Many government programs offer credit benefits to low-income Americans, and in doing so, they allow these individuals to build on their previous score and improve it, paying off a loan that they normally wouldn’t be cleared for by most borrowers.
You may find that older persons generally have a better credit score, although this can be attributed to the time they spent in the market rather than their actual ability to make regular payments
As trivial as it may sound, your credit score is the key to a safe and stable future with your family, and by starting to build it early, you’re securing a lot of benefits for yourself in the long run.
Stay up to date on your payments and do everything in your power to pay back any outlying debt on time and your credit score will go up accordingly.