Credit scores are an essential part of financial conversations, and for good reason. They not only determine the loans you are eligible for and the amount of interest you pay, but they can also influence other aspects of your life. Insurers, landlords, and phone companies may use your credit score to decide whether to accept your application or not. Even employers may check your credit score.
So, why is your credit score so important? Lenders use your credit score to decide if they should approve your loan and what terms and interest rate they can offer. Landlords, insurers, and employers use it to decide if you are a reliable person.
How is your credit score calculated? The two main credit scoring systems are VantageScore and FICO. Companies use information from your credit report, which is obtained from the three major credit bureaus – TransUnion, Experian, and Equifax. The five key factors that determine your credit score are recent activity, credit mix, age of credit history, payment history, and balances due. Of these five, payment history and balances due have the most impact on your FICO credit score.
Now that you know how important your credit score is, how can you maintain and defend it? Checking your credit report for errors or fraud is a good start. You can get a free copy of your credit report each year from the three major credit bureaus. Credit monitoring services can also help you monitor your credit. Additionally, you should develop good credit habits, such as making full payments of your balances and making payments on time each month, keeping a low credit utilization rate below 30%, and not closing old credit cards or applying for multiple loans or credit accounts in a short period of time.