You might be in two minds about getting a credit card because you’re just starting out in life and you don’t want to make unnecessary debt.
If you’ve chatted to a colleague or friend about this, you might have been told that getting a credit card will help you to get a good credit score. You might have nodded in agreement like you have a clue what he or she is talking about, but you are, in fact, totally clueless.
Credit score know-how is not only important for first-time credit card applicants. Even if you’re a pro at spending on credit (and maybe even especially then) you need to understand the importance of what your credit score says about you as a consumer.
Your credit score will influence how much debt you can make, and how much your debt will cost you.
But let’s start at the beginning.
What is a credit score?
A credit score is basically the report card of adulthood. But how good or bad it is doesn’t depend on how hard you’ve studied.
Your credit score is based on information that three credit bureaus collect about your spending habits. This includes information on how reliable you are at paying back debt, as well as legal information like whether you have been arrested or have filed for bankruptcy. These “marks” will make up a credit score.
You can score anywhere from 330 (not a good credit score) to 850 (a great credit score). You will fall into one of four categories:
• 619 and less: This is a poor credit score. You will not qualify for a mortgage loan.
• 620 to 679: This is a sub-prime credit score, which might make it difficult to obtain a loan, or will make it more expensive to pay back.
• 680 to 719: This is a good credit score, which will enable you to get prime financing and perhaps a few good deals.
• 720 to 749: This is a very good credit score and you qualify for practically anything, including great offers and loans.
• More than 750: This credit score is excellent and the world is basically your oyster. More than an oyster, actually, it’s the pearl. Low rates and anything you apply for will surely be yours.
Why is a credit score important?
Did we lose you for a second with all those numbers? Your credit score is important because this is what potential employers, insurance companies, creditors and financial institutions look at before agreeing to lend you money or approve any applications.
Want to buy a new car? Want to get insurance for the new car? Want to rent a house with a garage where you can park the car? Want to apply for a new job to finance all these new expenses? You’ll need a good credit score to be able to get these things.
Go over your credit score regularly to check for identity theft and errors that might have slipped in with the calculation.
How do I check my credit score?
How do I improve my credit score?
Ultimately, a good credit score depends on paying your debts and bills on time every month. Double-check to make sure debit orders were taken from your bank account and that payments have gone through.
You can also use something called rapid rescoring to raise your credit score in a relatively short time. Your mortgage broker can do this when you pay off a credit card, for instance, by providing the relevant information to the credit bureaus and requesting that the information is updated, resulting in a new credit score within approximately 72 hours.
Check your credit score and establish in which credit range you fall. If you have a low credit score, don’t fret. Start by paying off loans and credit cards as soon as you can.
We have spoken about ridding yourself of debt before on Counting Coins, check out these handy hints. A low credit score is not the end of the world, but it is always wise to aspire to have a higher score. The benefits are endless.