If you’re a young adult, personal financing can get a little tricky. Overdraft, liabilities, compound interest, asset allocation– so many terms, so much to process. Now let’s talk credit score. It’s essentially a number that displays your financial heath. This makes it extremely easy as it provides you with a visual representation of your ability to handle money flowing in and out of pockets.
A credit score is vital for lenders – like banks and credit card companies – to determine whether or not you qualify for a loan and how good the terms of the loan will be. It also reflects the likelihood of you paying credit back. The higher your credit score, the better your chances of being accepted for credit, at the best rates.
Your credit score influences your chances of getting:
- Credit cards, loans and mortgages
- Car financing
- Monthly gas and electricity payments
- Mobile phone contracts
- Insurance monthly payments
- Property rentals
Unlike a physical health check, people tend to only think of their credit score when they need to fulfill a financial obligation. Like applying for a personal loan or a credit card. Thus, this number is often forgotten.
Despite this, there are some benefits to regularly keeping an eye on your credit score. Especially if you’re trying to raise it to increase your chances of being approved for that home loan or if you’re paranoid about becoming a victim of financial fraud.
It helps you see how you’ve been handling your money
Think of your credit score as a financial report card that needs to be checked at least twice a year. It’s the best way to know how well you’ve been handling your finances.
A decreasing score could signal increasingly reckless spending behaviour which you can correct before it becomes a problem. Alternatively, a rising score can be a morale boost in showing that your efforts are paying off.
Like a proper report card, some credit score reports will also provide details about anything you might be doing wrong. It might be something as harmless as a couple of bills you forgot to pay, or it could end up highlighting a more deep-rooted problem such as becoming a guarantor for a bank loan more than a decade ago that has defaulted.