| Do you ever find yourself thinking: What's all this talk about credit scores? What's the importance of a good credit score and how does it actually impact my life?
Well, chances are very good that you will need to borrow money at some point in your life. You may need a mortgage to buy a home or secure a loan so you or your children can go to college. You may also decide you want a credit card so you can charge everyday purchases with plastic and earn rewards for spending.
This is where that all-important credit score comes into play.
Those three simple, mysterious digits largely determine what type and how much credit you can obtain and what interest rates you'll pay. Your score can also impact whether you will land that great new job or get to rent that cool apartment. And know that cell phone companies will check your credit score every time you sign up for a new contract.
So, why is a good credit score so important? Because lenders use your credit score to determine your creditworthiness.
Creditors, such as banks and credit card issuers, will turn to your credit score when reviewing an application. That score plays an important role in your life because it shows what type of credit risk you are to the lender at the time of your application.
Whether you want to buy or lease a car, get insurance or even rent an apartment, your credit score will follow you everywhere throughout your life. Having good credit is advantageous in many ways, while having bad credit may cost you money in ways you may never expect.
If you have a bad credit score, you might have more trouble taking out a credit card, car loan or mortgage — and once you do get accepted for a credit card or loan, you can expect to pay higher interest rates.
The consequences of bad credit can even extend to your job search or apartment hunt since both employers and landlords want to work with people who have a history of managing money responsibly.
Meanwhile, in addition to having higher credit approval rates, people with good credit scores are often offered lower interest rates. Paying less interest on your debt can save you a lot of money over time, which is why building your credit score is one of the smartest financial moves you can make.
For more cool stuff like this, be sure to visit CNBC's Financial Advisor Hub and Personal Finance section. |
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