Why Your Credit Score Matters, and How to Get a 700 Credit Score
In this blog post, we’ll answer the question of why your credit score matters, and will walk through how you can noticeably increase your credit score over time, as well as what the benchmark credit score typically is, how you can effectively utilize credit in order to bump up your credit score, and much much more. Having a good credit score is actually something that I had previously taken for granted, as I didn’t realize that having a credit score is often times vital to living everyday life, and that it can really open up a lot of doors that having a seriously bad credit score cannot. And so, in this blog post, I’ll show you why having a good credit score is so important, in everything from getting a credit card, leasing an apartment, buying your first home, getting a mortgage, getting a car, getting a job, and the like. For more information on why your credit score matters and how you can increase yours, read on or subscribe to our blog for additional details and information.
Some of the best ways that you can improve your credit or get on the board in terms of a credit score include the following:
Get a secured credit card
Get a credit card with the lowest possible balance and use it sparingly
Always keep your credit amount low and pay off the full balance every month
Never miss a minimum payment
Get 3 cards over 3-5 years and then never apply for any more
Keep all 3 cards for awhile and always make your payments on time
Other loans will help, mortgage, car loan etc. However you should avoid these if at all possible Finance-Wise
The only time I recommend using a cc is to get a credit score on the books
And a host of other factors, once again I am pretty vocally anti-debt, however I have to say that getting a credit card when you are new and always paying off the balance every single month is one of the single best ways to build a credit score. I personally have built my score up to almost 800 by using credit cards, which is no mean feat for someone who is still in their 20s and who has really worked hard to hit that number.
Why Your Credit Score Matters, Why is Credit Score So Important?
So, the FICO scoring model gives you a credit score range of 300 to 850, by the way FICO stands for Fair Isaac Corporation, the company who created the credit scoring model and the first company ever to offer a method of modeling credit risk for banks with a score by individual. Bill Fair and Earl Isaac actually founded the credit scoring model, and have since turned it into an incredibly large corporation. Fun fact on top of this, is that the credit score was invented in 1989, and another off-topic fun fact, but online banking did not get started until May 18, 1995, with Wells Fargo being the first bank to offer internet banking to customers. It did not become mainstream until really the early 2000s.
But back to the credit scoring model, so a credit score is basically just a way for banks and other lenders, like auto warranty dealers and mortgage brokers, to assess the risk of lending you credit. The higher your credit score, the higher chance you have of ending up with a prime rate on your loans (prime rate means that you’ll get the best and lowest interest rate on your loans), because the less risk you pose to the buyer, so the lower interest rate they can give you. Picture this, if I give a $10,000 car loan to someone with an 839 credit score who is 55 years old, the odds of him not paying back the loan is virtually 0. So to the bank, this is essentially showing them that this is an opportunity for literally…free money. They can then offer a rate of like 2-4% and can get literally 100% cash on their liquid deposits in the form of lending the money out to a worth consumer who will pay it back.
Take the flip side of this, and say you have a 29 year old who has declared bankruptcy and has a 550 FICO score. In order for a lender to even consider giving out a loan to someone like this, he would have to charge a massive interest rate on the same car loan, in the range of 15 to 20%, just because the risk is going to be significantly higher to the lender, and he is going to need to be compensated for this risk! The only reason he’ll take the chance on someone with maybe only a 60% chance of not defaulting, is if his $10,000 loan is going to become $12,000 or even $13,000 or $14,000, or $25,000 at some point in the future, in that the rewards are so good that they are worth the risk.
Is it Good if Your Credit Score Goes Up?
Generally yes, it is good if your credit score goes up, although in some cases it can also be bad. Let me explain this. The reason is that you probably don’t want to be running around just blowing money left and right in order to build credit, pick a store like your weekly Walmart shopping routine or when you are at the gas pump, and seek to use the line of credit only on your normal shopping. This will stop you from impulse buying or chasing rewards points, and will make sure that you don’t spend more than you meant. Credit lines can be a massively powerful tool, but you also have to be sure not to fall into the trap of paying interest to chase rewards points, or subconsciously spending more money because the pain factor is not there with credit cards, and because it is much easier to spend money with a credit card than it is a debit card.
Why is Your Credit Score So Important to your Future?
Your credit score is so important to your future for many reasons. First off, if you ever plan on entering the field of finance or accounting, they will indirectly look at your credit report in order to gauge really how well you are with money. Whether its asking questions about how much money you owe or if you have ever declared bankruptcy on a home or a mortgage, or whether its asking if you currently owe any debt to outside banks, keeping your credit score and your debt limits in check is something that is hugely important to do from a personal finance standpoint.
Final Thoughts on Why Your Credit Score Matters, And How to Get a 700 Credit Score
And so, this blog post dragged on a little longer because credit scoring and the debt system is something that I am very passionate about. If I wasn’t in wealth management I can totally see myself as a credit analyst, or as a bond trader moving senior debt around, I love the satisfaction of paying off debt and of keeping a good credit score at all times. For more information, read on or subscribe to our blog for additional details and information.
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