You Need To Understand Your Credit Score Before Asking Is Your Credit Score That Important?

Many people don't realize that your credit score is very important. Yeah, you heard correctly, your credit score. It may not necessarily be the most important thing in your life, but it is certainly vital to your financial success. Many people ask "Is Your Credit Score That Important?" Well, no, its not important if you plan on "NOT" getting a loan, having any credit cards, or buying a house with a mortgage. However, many people will apply for, or try to obtain, at least one of these 3 things and if they have bad credit, it will be much harder to obtain them.

In order to understand the credit score, you have to understand what lies behind it. A credit score is not just random number that is assigned to you. It is a number that is reached after a mathematical formula has been used with the information in your credit report. All the information in your credit report will be put into the formula and it will produce your credit score. Your credit report contains lots of information about previous transactions you have been involved in. Most of these transactions are bill payments, and all bills you have paid, on time, late, or not at all, will be listed clearly in the report, as well as any loans you have, or have not, paid off.

If you pay your bills on time, every time, and have kept up with any loan payments you have, its quite likely you have an average or above average credit rating. One or two late payments will not drop your credit score substantially, so you don't have to worry if you were a day late with a payment. However, those people who are consistently late with their payments will usually have a much lower score. If bills are ignored completely, your credit score will drop dramatically over time. In simple terms, your credit score is a measure of how competent and responsible you are with your finances and your budget.

Having a low credit score will not completely isolate you from society. It will just make financial decisions a bit harder. Those with low credit scores can still apply for loans and be accepted. The only problem is that the interest rate on a loan they receive will be much higher than if they had a better credit score. The same applies to mortgage rates and credit cards. Although, if the credit score is dreadfully low, they may need a person to co-sign with them. This is all to insure that the bank or credit card distributor does not get screwed on the deal. A big problem is that the interest rates make it harder for people with a low credit score to pay off, hence, it creates a never ending cycle of missed payments and lowering credit scores. Thats why it is advised that before you get a loan or credit card, try improving your credit score.

If you do find out that you have a low credit score, concentrate on paying bills on time. If you have credit cards, make more then the minimum payments; this will show that you are responsible and it is very likely that your credit score will raise with time. If any of your bills have an auto-pay option, get signed up for it right away. This will ensure that you pay your bills on time each and every time. Its not terribly difficult to maintain an average credit score, you just need some planning and a good ol 'fashion budget.

Source by Tim Gorman

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