Written By: Colin Kaehler
You may have seen one of the numerous commercials showcasing how some apps can improve credit scores in minutes, but what even is a credit score? A credit score is a statistical number that decides the creditworthiness of a consumer based on their credit history. Companies use credit scores to compute the probability that the individual will repay their debts over the selected time. These credit scores range from 300-850, and a higher score represents a greater amount of financial trust attached to the consumer. In a time where our country is at an all-time debt collectively, it’s important for money lenders to know they will get their money back from those borrowing. Therefore, the higher your credit score, the more opportunities you will have to purchase pretty much any product you want in the future.
Now, since your credit score is determined by your reliability to pay on time, there are obvious and easy ways to improve your credit score. This includes; paying all bills promptly, paying off any debt, keeping balances low on credit cards, applying for new credit cards only when needed, and keeping unused credit cards open (Experian.com). Firstly, paying bills on time gives you a good track record of being trustworthy with your finances. Thus, banks and people loaning money to you will feel better knowing you will return their investment plus interest on top. Secondly, paying off debt increases your credit score because if you have debt it shows that you’re unreliable when it comes time to pay. Thirdly, you’ll want to keep the balances on your credit cards as low as possible. By having a larger card limit and only spending a small amount of that every month, your credit utilization rate will drop. You can find your credit utilization rate by taking the total amount of money you charge on your cards per month and dividing it by your total credit limit. The lower the utilization rate, the better, because it shows lenders you don’t max out cards and know how to handle your finances appropriately. Fourthly, don’t apply or open new credit cards if it’s not needed. Although opening more accounts will increase your credit limit and could potentially increase your utilization rate, it will also tempt you to overspend. Thus you would go into debt and be deemed not trustworthy for credit. Fifthly, it’s a very smart strategy for anybody with a credit score to keep unused accounts open. This is because if you don’t use it, you don’t have to pay for anything and the account just adds to the credit limit but not your credit charge. Therefore, your dividend in the utilization rate would increase making the rate even smaller and better your chances for purchasing products in the future.In conclusion, a credit score is a very important part of your financial success and you should understand at a high level what makes a good credit score. With your good credit score, you will be able to get better finance options when buying a house, cars, or any other big product. Without a decent credit score in the range of 630-689, you most likely will have to pay high-interest rates on any money you borrow from a bank or someone. This might cause you to fall into debt and you send even further into the hole. So, start to improve your credit score as soon as possible to give yourself the best chance to succeed in the future.
Works Cited
“How to Improve Your Credit Score Fast.” Experian, 31 Jan. 2020, www.experian.com/blogs/ask-experian/credit-education/improving-credit/improve-credit-score/.
Kagan, Julia. “Credit Score.” Investopedia, Investopedia, 31 Jan. 2020, www.investopedia.com/terms/c/credit_score.asp.
O'Shea, Bev, et al. “Credit Score Ranges: How Do You Compare?” NerdWallet, 19 Dec. 2019, www.nerdwallet.com/blog/finance/credit-score-ranges-and-how-to-improve/.
This really helped me understand why credit score is so important, thank you!
ReplyDeleteI agree, credit score is something that everyone should fully understand. I don't think our age really understands the importance of a credit score, and how it can effect us. The positive and negative effects of credit score are to be known by everyone looking to get a credit card(s). Not only for now, but for the future, credit score is very important, so we don't end up in debt.
ReplyDeleteThis advice is really detailed and provides a good explanation of why credit score matters. What do you think the average credit score for students right out of college would be? I think it would be between bad and fair, since the amounts owed greatly impacts credit score, and nearly all students take out loans to pay for their higher education. Is it important for new graduates to improve their credit score as soon as possible to avoid falling deeper into the pit of a low score?
ReplyDeleteI didn't realize all the factors that went into improving your credit score. You made very good points on not maxing out credit cards or opening new credit cards when it's not needed. I think a lot of people want to open so many credit cards because it can give them different rewards and offers. For example, if you have an American Eagle credit card and spend a certain amount, you will receive coupons for there. So your article is important because it is talking about the risks of opening more credit cards, even though it might be tempting.
ReplyDeleteCredit score is an extremely important topic to discuss, especially as we approach adulthood, as nearly every adult uses credit cards as a form of payment, yet lack knowledge of maintaining a good score will ultimately lead to major financial strain and inability to make large purchases. One aspect of credit score is potentially having several cards, as you mentioned, and this area alone could be focused in on much more closely: how does having multiple credit cards work?; what are the pros and cons of having multiple cards versus just one card?; what are the potential negative effects of having too many credit cards than you can manage?
ReplyDeleteIn today's life, credit score is a very important and crucial part of our lives. Most of us don't truly understand what credit score is, but this blog post has done an amazing job of giving us an overview on what it can affect in life.
ReplyDeleteAgreeing with what you said, a lot of us don't really know what credit scores are or what a good one looks like. I think we are entering the age where all we want to do is spend money so it is hard to limit ourselves. This can put us in credit card debt which will make us worry about our spendings in the future because we won't know how to handle it now.
ReplyDeleteCredit Scores are very important to our financial future, and so it is, like you said, very important to start developing the knowledge about our credit scores now. By developing our knowledge of credit scores now, it will help us be more aware of how some of our financial choices my affect us in our future, and what is financially attached to our future.
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