What is Credit and Why is it Important?

Credit scores and reports can be complicated and confusing, but if you ever want to take out a loan for a vehicle or a house you will want to understand credit and why it is so important. Your credit history determines what loans you may qualify for.

Lenders will obtain your credit score as well as your credit report; they will combine this information to evaluate your risk as a borrower.

Credit Scores and Reports

Your credit score is a number that usually ranges from 300 – 850, it is used to determine your credit worthiness. Lenders will look at your score as a sign of your ability to pay back your debts.

Your credit report is a complete overview of your credit history. It will contain all of your credit accounts, loans, account balances, payment history, credit cards, and credit limits.

It is essential to know both your credit score and what is on that reports. Without your report you do not know what factors impacted your score. Your report is an overview of what you are doing right and what you can do to improve your credit score.

Factors of Credit

  • Type of credit you have:
    • Student loans
    • Car loans
    • Mortgage
    • Credit cards
  • Late payments
  • Credit use
    • How much credit you are actually using
  • Credit report errors

Before you go to a lender for a loan be sure your report is up to date, you wouldn’t want to be turned down for a mortgage or car loan because of an error that could have been prevented.

Why Credit Scores are Important

Your credit score influences your odds of getting approved for a loan or credit card. This is extremely important when you want to buy a home because your score will affect your mortgage eligibitly. There are a few other reasons your credit score is important:

  • Your credit score can impact your insurance premium. Not all states allow insures to check your credit score, but many do still allow it. With a lower score you might end up paying more for coverage.
  • You could qualify for better deals when you sign up for cable or internet. A lot of internet, TV, and phone providers check your credit; if your credit is poor you could be denied service at all.
  • When you have good credit you will have access to better financial deals and opportunities.