Your credit score is a vital part of your existence, even if you don’t think about it very often. The higher your credit score the easier you’ll find it to get loans and the better the interest rate will be.
In essence, your credit score shows how good you are at repaying credit.
Of course, it’s a little more complicated than this, the amount of loans you have versus your income also plays an important part.
Why A Credit Score Is Important
Your credit score, providing it is good, can be used as leverage to ensure you get the best possible finance deals available.
Even if you intend to never use credit you may find there comes a time when you need a little extra. Having a bad score will mean the credit you’re offered has a higher interest rate. This can make it more difficult to make the repayments and start you on a slippery slope.
Higher interest rates can make a big dent in the cost of finance throughout your life.
For example, if you have a score of approximately 600 you’re likely to spend $65,000 more repaying a $200,000 mortgage than someone with a 700 plus score.
In short, a good credit score will help you to get the finance you need without costing you a fortune in the long term.
Running A Business
A good credit score is not just necessary for personal reasons; it is also an essential part of running a successful business.
What is perhaps the funniest part of credit scores is that those who have borrowed funds and repaid will have a better score than someone who has never had credit! The only way to get a good credit score, or improve your credit score, is to get credit and repay it on time.
This may seem a little unfair, especially if you’re just starting in business and need credit. That’s when you may need credit the most.
Fortunately, you can do something to improve your credit score. If you’re a business check out the net 30 vendors approach. In essence, you’ll be taking out credit for 30 days at a time, providing you repay it you’ll quickly improve your credit score.
The same can also work if you’re looking to improve a personal credit score; just don’t take too much credit. Struggling to repay it will not help your score.
Calculating The Credit Score
It’s important to be aware that there are actually 3 main credit bureaus which establish your credit score. They all use different criteria, your score may be different with each one.
If you’re looking for finance that will help you to build your credit score then you should check that the loan provider will report your loans and repayments to one of the big 3 credit agencies. Then, as long as you stick to the repayment schedule, you’ll find that your credit score is going in the right direction.
The trick is to take the shortest term credit possible and repay it on time, or before if possible. Remember, you don’t want debt; you’re just trying to boost your credit score.