Many people, especially younger generations, are unaware of not only what their credit
score is, but also what a credit score is. Because many people are uninformed of the
serious damage debt can do to their credit score, they unknowingly abuse their lines of
credit.
But, as more and more people grow dependent on credit, it is crucial that they understand
their personal credit report, credit rating, and its importance to their financial future.
1. What Is a Credit Rating?
Opening a line of credit means a person is borrowing money from a lender—often times
a credit card company—and has an allotted time to pay back the money they owe. Once
a line of credit is open, it is automatically reflected on their credit report. When a person
pays their borrowed amount on time, their credit rating goes up. In turn, if a person
misses payments consistently, or only pays the minimum balance, the interest they are
accruing is both expensive and negatively reflected on their credit rating.
There are other aspects that factor into a credit rating, such as how many lines of credit a
person is responsibly (or irresponsibly) maintaining, how many assets a person has, and
how many loans they owe. The best way a person can see where they measure up is to
check out their credit report on a site like CreditSesame.com.
2. Why Is it Important?
When it comes to applying for any line of credit, whether it is a new credit card, a home
mortgage, or even a business loan, a person’s credit score plays a large role in how much
a lender is willing to let a person borrow.
A high credit score lets a lender know that the applicant is a responsible borrower and is
likely to have the ability to pay off their borrowed balance. On the other hand, if a lender
sees an applicant who has a low score and a pile of debt, there is an exceptionally low
chance the lender will approve them because they pose a financial risk to a lender or a
lender’s company.
In order to purchase a home, a car, open a business, or even get a well paying job, it is
vital for a person to have a healthy credit rating.
3. Credit Is Fragile
It is just as important for a person to be aware of their credit score as it is for them to
have a high credit score. Why? Because credit is fragile. Not only is it easy for a person
to unknowingly harm their credit score, credit score errors are a common issue. If a
person is aware of their credit score, seeing a significant drop can alert them that there is
a mistake on their report.
Because so many factors play into a person’s credit score, it is a wise idea for a person to
check their report annually to make sure they are building a good credit rapport, which
will offer them a stable financial future.
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