Imagine that a friend asks to borrow some money, telling you they’ll pay you back at the end of the week. You might be a little reluctant at first and wonder if they’ll repay it, but agree to lend it to them. On Friday evening, you receive a notification from your cash app that you’ve been repaid! Friend borrowing score: Good. A few weeks later, another friend asks you to spot them some cash for a few days. You ask a few questions and again decide to lend it. But this time days and weeks go by and you don’t hear a peep from your friend, with no sign of your cash. Friend borrowing score: Poor.
Financial institutions and credit card issuers get thousands of requests every day to borrow money. How do they decide how much to lend and to whom? They rely on credit scores, and the credit reports that feed into those scores. They are a reflection of your payment and borrowing history. It’s important to have a good score because it can save you money long term. How? Your credit score helps determine whether you qualify for a loan at all, and what interest rate you will pay if you do. It’s also reviewed when you want to rent an apartment, and even by some employers. So a good credit score can make a big difference.
This week in our “Where to Start” series we’re talking about how to improve your credit score. There are five main parts of the score, but two are more heavily weighted and make up 65% of your score. Want to know what they are and how to improve your score? Read our full article here.