Your credit score is a tool potential lenders use to determine how likely you are to repay borrowed money on time. So, is it important?
Your credit score matters, if you want to borrow money in the future.
Mortgages, car loans, and credit cards are some of the most common consumer loans. A mortgage is money you borrow to buy a house and agree to pay back over time. A car loan is similar but for buying an automobile. Credit cards are a little different (there’s no asset like a house or car backing the loan and the amount you borrow varies), but the idea is the same.
Put yourself in the shoes of the lender.
Let’s say you have two friends who want to borrow money. Who are you more likely to lend $100 to? The friend who you know is always behind on their bills and still owes you a few bucks from the last time you lent them money? Or the friend who’s always on time and repaid you the very next time you saw them after you spotted them $20? If you’re like most people, it’s no contest. Professional lenders are the same.
Even if you don’t have immediate plans for borrowing money, it helps to pay attention to your credit score.
They take time to build up so you can’t just start paying attention a few months before you apply for a loan. Additionally, there are some cases when your credit score is used even if you’re not applying for a loan: by landlords you want to rent from, by utility companies, even by some potential employers.
The good news is the habits that give you a good credit score are also habits that can help improve your financial future overall.
- Make payments on time.
- Don’t max out credit cards.
- Don’t apply for a new credit card every month.
We’ll cover the details of what goes into your credit score in another post. For now, just remember that the number is a tool lenders use to evaluate you AND a tool you can use to get better loans that cost you less in the future. It’s not a financial report card and not something you need to obsess over. If you’d like to talk through more strategies on improving your credit score, head to the dashboard and chat with a BrightDime coach today!