Aim to reach a high score – not just for tests and games, but the credit score. Having a bad credit score could cost you a lot of money.
Without a good credit score it will be harder for you to get:
- a loan, mortgage, credit card
- a good interest rate when you’re borrowing money
- rental housing. A lot of landlords perform a credit check on applicants.
When you have a good credit score, you are telling the lender that you pay back money. You are responsible.
On the other hand, when you have a bad credit score, you are telling the lender that you don’t pay back fast enough, or worse, you don’t pay back at all. Even if you can convince them in interviews that you are responsible, the credit score tells the hard truth. That you’re not.
It’s important to build a good credit history. Start by obtaining a credit card and make sure you pay back the balance every month. That will be a good start to build a credit history and good credit score.
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When you apply for credit (eg loan/mortage/line of credit/credit card) the bank wil measure your 5Cs of Credit.
5Cs of Credit in a nutshell (no, there is no “C”uteness)
Measures if you’re borrowing too much or not. It measures the amount of debt and income you have. Are you able to comfortably pay back all debts?
Measures your savings, investments, and other assets that can help you pay back the loan.
Measures your track record with debt. Your credit score is checked. Your credit score is mainly determined by your credit history which show if there’s anything outstanding that went to collection or if you are slow at paying back or frequently skip payments. Check your credit history periodically to make sure you haven’t forgotten about anything.
This is like a backup if you end up failing to pay the loan – eg for a car loan your car is the security. The banks can take your car.
Lenders want to know why you are borrowing. A lender may be more likely to approve a loan with a specific purpose like for a house (mortgage) or a car, rather than for a loan that can be used for anything.