Credit Score 101
We often hear the phrase ‘credit score’ and people are often worried if their debt will ruin it for the future. So, what is this credit score and why do we need it to do business and several other things in the US?
What Is It?
A credit score is a statistical number that shows how trustworthy you are regarding credit. It is based on your credit history. It is used as a probability rating from 300 – 850 and the higher the number, the more trustworthy you are.
How Is It Calculated?
A credit score is calculated carefully and takes many things into account. Some of these things include your past credit card debts, loan applications, being overdue on some bills, overdrafting your account, still paying your student debt or college loan, and so on. It is important to note that the calculation does not include your race, religion, sexual preference or political affiliation.
Your credit score is created by three credit bureaus – Equifax, Experian, and TransUnion. The scoring models used to calculate one’s credit score are usually FICO and VantageScore. The reason behind this is simple – it allows all bureaus to look at the same data while calculating your score. This prevents your score from being high on one scale and low on another, which would bring endless confusion while applying for a loan, for example.
Why Do You Need It?
Many countries in the world operate on cash and credit. The bigger deals in the US are almost entirely credit-based. Having a good credit score helps you get better rates and better deals, as you are deemed responsible enough to pay your dues on time. People with a bad credit score will miss out on many deals, including no deposit plans for phones, as the score displays that they can’t be trusted with money.
It is also important in your everyday life. You can’t get a home loan at a decent rate if you have a bad credit rating. Sometimes, you can even be denied loans if your credit score is sufficiently low.
Your credit score is not something only banks look at. Potential landlords, the phone companies, and insurance companies are all very interested in how financially stable you are and whether you can pay your bills on time. Some of the private companies go so far as to develop their own methods of determining your credit score.
The Business Side
While your potential employers don’t normally have access to your credit score, they can look at your credit reports. Their idea of your financial stability and responsibility can make or break your chances of working for them.
Also, consider having your own business. There are many initial investments and expenses that the banks and other companies will be willing to cover for you only if they know you are trustworthy enough to pay them back. This is why it is of utmost importance to have a good credit score, whether it is in your personal life or in business.