Why Does Your Credit Score Matter?

In today's world of instant everything you may be wondering why bother with your credit score? Your credit score is important because it is the first thing any financial or lending institute will look at to determine if you are a reasonable risk to lend money to.  But maybe I'm getting ahead of myself...

 

 What Is A Credit Score?

Generally speaking, your credit score is a measure of your financial history and your anticipated ability to manage debt.  Its a complicated formula that takes into account your loan and repayment history across all sectors.  Also considered are the types of loans and accounts you have and how often you apply for loans.  Ultimately the goal is to assign a three-digit number that represents your creditworthiness.

 

How To Maintain A Good Credit Score

Now that you have a basic idea about what a credit score is you also have an idea of its importance in your financial plan.  Your objective then is to maintain a good credit score so that you can:

·      get a credit card

·      get a mortgage

·      get a car loan

·      get a bank loan

So how do you keep a strong credit score?  Be diligent.

·      pay your bills on time

·      only apply for credit that you need - you don't need six credit cards

·      maintain a variety of banking and investment accounts

·      be employed - show regular deposits into your account

Basically, if you practice good money management you should be able to maintain a good credit score.

All good practices and intentions aside, your credit score will move around a bit depending on your financial situation.  As time goes on and you acquire more debt, get a mortgage, have a family, etc. its important to remember to always make your payments on time.  That is probably the one thing that will affect your credit rating the fastest. 

Life happens so try not to sweat the small stuff.  Just do your best and try to always keep a thought on your credit score when you are making financial decisions.   A budget is the perfect tool to help you stay on track.

For more on budgets read this article: A Budget - The Ultimate Financial Tool  on my website.