Your Financial Reputation Is… A Number?
The credit score dilemma
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Imagine a small sum of money (let’s say… $2,700) being the only thing that stops you from achieving financial freedom…
None of your friends are willing to lend it to you, so you decide to ask the bank. But… The bank won’t give you more than $1,200.
Why?
Because your credit score is worse than a flat tire on a highway. But you can improve it.
First, let’s make sure you clearly understand what credit score really is.
Not only is it an important financial metric that keeps money away from you, but…
Credit score is your financial reputation.
Remember school, where you got grades based on your performance?
Credit score is like those grades. It shows your lenders you’re good at borrowing and great at paying back money.
Based on it, banks and lenders decide how much money they give you, if any.
Credit scores are usually shown as a number between 300 to 850.
Being closer to 300 means you have to work a bit more on your money-managing skills.
But, being closer to 850 means you’re a rock star at paying back the money you borrow.
So, credit score is a number. Yet it doesn’t involve math, because…
You don’t calculate your credit score. Banks and lenders do.
And they do it by looking at a bunch of stuff, like:
If you pay your bills on time.
What types of loans/credit cards you have.
How much of your credit limit you use.
How long you’ve been borrowing money.
How fast you’ve been at paying your debts.
If you’re applying for lots of new credit in a short period of time.
Yet, besides credit score being your financial reputation… Here are more reasons why you don’t want a low credit score:
Your credit score also plays a sneaky role in interest rates.
A sky-high credit score means lower interest rates. It's like finding a hidden treasure chest full of money, but instead of giving it away to the bank, you get to keep it.
While a sea-level score might mean higher interest rates, and you don’t want others to shower in the money you throw out the window… Right?
A good credit score doesn't just help you get loans, it also opens doors to more credit options.
It's like having a VIP pass to the financial world. Need a credit card? No problem! A solid score can make it rain with credit card offers.
Also, your credit score is your secret weapon in rental applications. Landlords can (and will) verify your credit score to see if you're the rent-paying rockstar they've been searching for.
Who knows? Your credit score could make you a landlord's favorite tenant.
But do you know who can also be secret admirers of your credit score?
Insurance companies.
They might use it to set premiums for your auto or homeowner's insurance.
Having a high credit score feels like waving a magic wand and making your insurance premiums magically decrease.
And that’s why your credit score isn’t just a number, but your financial reputation.
Now, picture your credit score as a hot air balloon floating toward the horizon of financial success.
Here are 7 tips to keep that balloon rising higher and higher: