What is Credit?
Credit allows you to borrow money and access products or services now, with the understanding that you will pay in the future. Your ability to access credit is based on your credit history, which is a record of your debts and repayment of those debts.
What is a Credit Score?
Your credit history is compiled by three independent credit bureaus (Equifax, Experian, and TransUnion) into documents called credit reports. Your borrowing information is voluntarily reported to the credit bureaus by banks, credit card issuers, credit unions, and other types of creditors.
Each credit report summarizes your credit history with a number between 300 and 850. High credit scores reflect a good credit history, while low scores reflect a bad credit history. A typical breakdown of credit scores is as follows: 300-579 = Poor, 580-669 = Fair, 670-739 = Good, 740-799 = Very Good, 800-850 = Excellent.
Why is Your Credit Score Important?
A good credit score is important because lenders use this score to determine how likely you are to pay back your debt. A high credit score makes it easier for you to borrow money, and at more favorable terms.
Your ability to borrow money impacts multiple aspects of your life because it gives you access to goods and services that are too expensive to purchase up front. Common examples of such large purchases include homes and cars. But even renting decisions are influenced by credit scores, as landlords and property management companies will run your credit if you apply for an apartment or other rented living space.
Having a higher credit score also provides access to higher limits and better interest rates on credit cards. Credit cards are convenient not only for fraud and theft protection, but many also offer rewards programs.
Insurance companies will also run your credit as part of the process of determining your premium rates, offering better rates to those with higher credit scores. A high credit score not only gives you the ability to make large purchases, but to secure better rates on those purchases (i.e., save money on the repayment). The same goes for surety companies, as most types of bonds require a credit check. Please click here for more information on bonds.
