Credit Score Basics. Why A High Credit Score Is Beneficial.
Credit Score Basics
What Is A Credit Score?
Planning on buying a home? What’s your plan? 20% down? You may need to rethink that if you have a low credit score.
Think of your credit score as a trustworthiness score to lenders. When you open a credit card and start using it, you will build a start to build credit. You may need to wait a period of time in order to obtain your credit score. The score is on a scale from 300 to 850 and the higher the number, the more likely you are to pay off your debt. This gives lenders an incentive to give you better rates on things like your mortgage, auto insurance, car loans, etc.
Why You Need A High Credit Score
As a lot of people have experienced debt isn’t fun. However, with the correct financial strategies, we can reduce debt or even use it to our advantage. Think about your AAA insurance. A higher score will allow you to get lower annual rates. Another example is buying a house. A person with a lower credit score with about a 600 credit score could pay $65,000 more on a $200,000 than someone with a 750 credit score. That is almost a 33% increase on the same mortgage. Personally, I want to thank my credit score for my student loan refinancing rate. I had a student loan average interest rate of about 8%, after refinancing my loans, my interest rate is 4.1%. Lenders such as Sofi will look at your credit score amongst other things and calculate a rate for a refinancing loan. See below for the savings on a $70,000 loan.
How To Increase Your Credit Score
These are the main ways you can increase your credit score:
- Pay off your credit cards and/or loans in full every month
- Pay off your credit cards and/or loans on time
- Make consistent, but low purchases (under your credit limit) to show that you are responsible for paying off what you owe.
Conclusion
A credit score is an important tool that could help you save lots of money, especially in the long run. Use your credit cards wisely, always pay off your bills, and get that high credit score!
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.
