What exactly is a credit score (also known as your FICO score) anyway? It’s a metric, ranging from 300 to 850, that measures how likely one is to fulfill his/her financial responsibilities and obligations; creditors take this metric very seriously. The higher the score is, the better. Having a high FICO score comes with many advantages. Most people start building or “damaging” their credit score during their college years.
WHY DOES THIS SCORE MATTER?
Your credit score can affect various aspects of your life ranging from buying a house to applying for a job. Following are 6 scenarios when credit score matters:
1) Applying for credit cards - As ironic as this may sound, you need to have credit to get approved for credit. So how do you establish credit in the first place? The best way to solve this scenario, especially if you are young and have no credit when you apply for your first credit card, is to apply for a secured credit card with a financial institution (perhaps the same bank where you have your checking account). This means the bank will give you a limit equal to the amount of money you give them to hold as collateral incase you don’t pay for the transactions you put on the credit card. Common limits of secured cards are $250 or $500. Paying the minimum monthly payment or more every month will help build your credit; showing creditors that you are a safe investment. Having credit already established, even I started with a secured credit card, allowed me to get approved for the Chase Freedom card that offers wonderful cash back rewards after accumulating points for your transactions.
2) Applying for a loan - Have you ever dreamed of buying a house or opening a business, your chances of getting approved will be greatly affected by your credit score. In addition, an added benefit to having a high FICO score is that you will get a lower interest rate.
3) Applying for a job - When you apply for a job, typically, you fill out the application, submit your resume, and agree to a background check. This background check could include calling previous employers, verifying that you graduated from the college you stated on your resume, and ALSO checking your credit score. Not all employers will check your score, but you need to be aware that this could be part of the process. Keep your credit score high so you don’t have to worry about getting ruled out for this vary reason.
4) Renting an apartment – Part of the application process to rent an apartment requires that the apartment community check your credit score. A low score will result in having to pay an additional deposit or deny you entirely.
5) Insuring your house or car – Many people are surprised to find out that their credit score affects the amount they pay for house or auto insurance. Of course, this isn’t the only factor but it plays a part.
6) Setting up utility services – Have you ever called your local electric company to set up an account to find out that you have to pay a deposit to get the service? Even utility companies look at your FICO score to determine how “financially responsible” you are. A low score tells them that you are a risky investment; hence, they require that you pay this deposit in the event that you fail to make your payment(s). Yet, another reason to work on improving or maintaining a high FICO score.
As you can see, your credit score affects many aspects of your life. Your credit score is a strong representation of how you manage your personal finances. Don’t let your credit score hold you back!
Did any of these reasons surprise you? Or do you know of any others?
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