What Are Credit Scores Used For?
Statistics from the National Foundation for Credit Counseling prove that most Americans undervalue the importance of their credit score. As of March 2014, more than 50 percent of American adults had not reviewed their credit score within the last 12 months.
There are three credit bureaus: Equifax, TransUnion and Experian. Each bureau creates and maintains your credit report. They use the data on this report to calculate your credit score.
Credit scores can determine your eligibility for credit cards, home loans, auto loans and many other services. Without a decent credit score, it is difficult to make major financial purchases.
Here are three ways your credit score impacts your financial life:
1. Qualifying for Credit Cards
Credit scores range from 300 to 850, with higher numbers indicating a lower credit risk. It is impossible to know exactly how much your credit score influences a bank's decision to offer you a credit card because the exact formulas vary. However, your credit score is certainly a determining factor in whether your application receives approval.
In addition to influencing your application, a high credit score can earn you extra credit card perks, such as reward points and bonus programs. With a good credit score, you can also qualify for a higher credit limit and lower interest rate, both of which can save you a lot of money over time.
2. Qualifying for Mortgage, Auto and Private Student Loans
Your credit report and credit score impact your approval for several types of
loans, including mortgages, auto loans and some types of student loans. Your credit score is a major factor in determining your eligibility for a mortgage loan, particularly since the recent housing crisis.
When it comes to getting an auto loan or qualifying for a lease, your credit score affects the length of your loan, as well as the interest rate. Although federal student loans don't take into account your credit score, private loans do.
3. Qualifying for Other Services
Your credit score impacts a lot more than your eligibility for a credit card or loan. Many other services now check your credit score:
Apartments: Many leasing companies check credit scores before accepting applications. A low score can mean you must pay a higher security deposit.
Insurance Companies: Insurance companies will often determine how much insurance you can buy and what you should pay for it based on your credit score.
Employers: Employers ask for your social security number so they can check your credit score. It may be difficult to find a well-paying job with a low score.
Miscellaneous Services: Without a good credit score, you may have to pay a deposit to get cell phone service or turn on a utility.
The best way to increase the chances that you will qualify for credit services is to be proactive. Keep track of your credit report and credit scores, and verify the information for accuracy. If you find any mistakes, it is your responsibility to report them to the appropriate bureau.
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