Consumer debt is a reality for many Americans.
As a result, it is more important than ever for every consumer to be knowledgeable about his or her credit habits and borrowing capacity.
And the primary way lenders assess this ability is through credit scores.
1. What is a credit scoring system?
Credit scoring systems reward people with points for having credit, using it, and making timely payments.
The higher your credit score, the better.
When you use a credit card and pay the balance on time, your score rises.
When you exceed your credit limit and pay late, your score falls.
Credit score can also be related to seemingly unrelated things, such as your ability to find work or obtain insurance.
That’s correct.
Insurance companies, as well as potential employers, may look into our credit history to determine our level of personal stability.
Other financial or legal factors are also considered.
For example…
Having more than $100,000 in cash in the bank raises your credit score while declaring bankruptcy lowers it.
2. What is FICO’s credit score with 3 levels to watch?
Most lenders in the United States use some variation of the Fair, Isaac & Co. scoring system.
The “FICO score” of a person ranges from 400 to over 800 points. The range operates in 3 levels as follows:
- A credit score of 420 means you will be denied a credit card, car loan, or home mortgage.
- A credit score of 570 means you can get any of these, but not at the best-advertised interest rate. You will almost certainly be charged additional fees.
- A score of 720 indicates that you will receive the best interest rates and the fewest fees.
Credit scores are constantly changing.
They can change as quickly as monthly…but they usually change quarterly.
Smaller changes usually take longer to occur.
Larger changes, such as declaring bankruptcy or winning the lottery, happen faster.
Do you know what will happen if you fail to make a payment on one or more of your credit cards?
How about your car loans?
What about home loans?
In many cases, interest rates will skyrocket.
3. Credit Score is Important
Your credit score is most likely the most important aspect of your life that the government does not manage.
If you’re like the majority of Americans, you have only a blurry understanding of your credit score.
Many people are more concerned with their mortgage interest rates or the car deal they got.
Checking the specifics of your credit score is unpleasant, even if it’s not so bad in reality.
Whether you have good or bad credit, the first step is to determine your credit score.
Your wallet will notice a difference.
You, too, will.
We’re not trying to instill guilt in you.
We’re simply pointing out areas where you might be able to save a lot of money by paying attention to a few “minor details, which is the credit score.”
