Building your family’s financial future is a labor of love. One important aspect is your credit score. Here we can help you understand what a credit score is and why it matters in your daily life.
What is a credit score?
A credit score is a number assigned to you by a credit bureau that is designed to “predict how likely you are to pay back a loan on time,” according to the Consumer Financial Protection Bureau (CFPB), a U.S. government agency.
Your credit scores are based on factors such as your “bill-paying history, your current unpaid debt, the number and type of loan accounts you have,” and other factors in your credit report, as explained by the CFPB.
Why does your credit score matter?
Many lenders use credit scores to decide whether to approve credit applications, such as a loan or credit card. In fact, your credit score is used to make several types of decisions that may affect your family’s life:
- Personal loans, auto loans, home loans: Lenders (like banks and credit unions) may consider your credit score when deciding whether you qualify for a loan. It can also affect how much you qualify for and what the interest rate will be.
- Insurance (for example, auto and home insurance): Insurance companies may look at “credit-based insurance scores”. These special scores include many, but not all, elements of the common credit scores. Lower scores are associated with more claims, so insurance companies could charge a higher insurance rate.
- Utility companies: They can consider your credit score “to decide if a new customer has to make a deposit for service”, according to the Federal Trade Commission.
- Cell phone companies, landlords: Cell phone companies and landlords can also look into your credit score before giving you service or renting an apartment to you.
A good credit score can provide you with better rates on loans and credit cards. It can also help you with many aspects of your daily life and with planning your family’s finances.
Tips from Oportun:
- Before you choose a loan, ask whether the lender reports customer accounts to the credit bureaus. That way, your on-time payments may help your credit history and credit score.
- Checking your credit report enables you to see your credit history. You should report any incorrect information that could affect your score. By law, you can get one free copy of your credit report every year from each of the three major credit bureaus – Experian, Equifax and Transunion. Request your free credit report at https://www.annualcreditreport.com.
This blog is for informational purposes only. It is not meant to provide personal financial advice. Please speak with your accountant or financial adviser for personal financial advice.