An individual’s credit score is his or her lifeline to receiving an auto loan, a mortgage, renting an apartment, obtaining a cell phone, or even landing a job and the record you build, good or bad, stays with you for a long time.  The formula that is used to determine an individual’s credit score uses information about the individual’s payment history and the current amount of money that is owed to lenders. Your credit score is also affected by the number of new accounts that have been opened recently and the length of your credit history.

The details of your credit score

It is important to note that every time you apply for a line of credit, this goes on your credit report, and affects your credit score. A credit report is very much like your permanent record in school. If you have a bad credit report, there is no way of getting rid of it for an extended period of time.

Your credit score can range anywhere from 300 to 850.  The higher the credit score is the better and more credit-worthy you are.  A good credit score is 720 or higher, while a risky credit score is anything below 620.  An individual that has an excellent credit score is a score of 750 or higher.

How your credit score impacts the important aspects of your life

The reason that your credit score is so important is because this score ultimately determines whether or not you qualify for a loan, and if you do qualify, how much you can borrow. An individual that has an excellent or a good score will qualify for a larger loan amount, with a great interest rate.

On the other hand, an individual that has an average credit score may still qualify for the loan, but will need someone to co-sign on the loan. The loan will have a higher interest rate because there is more of a risk to the company making it. If you have bad credit, you will probably not qualify for any type of loan, and if you are able to obtain a loan, it will be at an extremely high interest rate.

It seems that everyone is constantly looking at our credit score. Some employees will even check a person’s credit report before hire. If you want to be able to rent an apartment, purchase your first-home, or obtain an automobile loan, you must have a good credit score. A good credit score is your golden ticket to better loans and lower interest rates.

If you have a poor credit score or no credit score at all, you will even have trouble obtaining items, such as a credit card or even a cell phone. Some cell phone companies require a $500 deposit, for individuals with no credit or bad credit before they will issue cell phone service. Your credit score is checked each time you apply for phone service or for utilities. 

In order to view your credit score and credit history, you will want to obtain a credit report. You can usually obtain a credit report annually for free from the three major credit bureaus, Equifax, TransUnion, and Experian.  Most financial experts recommend that a person review their credit report three times a year.  When you review your credit, you can check for discrepancies that may be lowering your score.  By taking the necessary precautions, you can develop a great credit rating that will benefit many of the important aspects of life.  In fact, life is so much easier when you have a good credit score.

View your credit card as a financially enemy, not an ally

Many people view their credit card as a friend, instead of the enemy it really is.  In fact, a credit card can be your worst enemy when it comes to staying out of debt.  It is estimated that the average American carries $8,000 of credit card debt.  A credit card can easily wreak havoc on your credit score, making it hard for you to rent or purchase a home, get a job, start your own business, or buy a car.

A credit card is a financial enemy that does not allow you to reach your financial goals. Do you want to purchase a house? Have you been fantasizing about a dream vacation? Do you want to improve your credit score? If you answered yes to any of these questions, then you want to put the credit cards down. Think twice before you take out your credit card to purchase that new fall wardrobe or the latest gadget that just hit the stores.

Spending more than you can afford

It has been proven that people who have credit cards are more likely to spend beyond their means.   This means that with one quick swipe of the credit card, an individual is racking up the amount of debt that will eventually bury them.  Many people cannot help themselves from not buying when they know that their credit card is handy. It does not matter if they need the purchase or not - the only thing that matters is that they can simply swipe their card and pay for it later.

Paying exponentially for your credit card swipes

Later down the road of life, you may realize that you are thousands of dollars in debt. Worse yet, by the time you pay off your credit cards, you will most likely not even have the items you purchased.  Unless you pay off your card each month, you are paying more than the purchase price of the item when you buy it with a credit card.  This means for a $75 pair of shoes, you could end up paying a hundreds of dollars in the long run. A credit card is not helping you to save money; instead, you are spending more money for the items that you purchase.

Hurting your credit score

Another huge pitfall of a credit card is the impact on your credit score. If you have too many unpaid credit card accounts or even too many accounts period, this will have a negative effect on your credit score. Also, each time you apply for credit, this inquiry is recorded on your credit report, whether you were approved for the credit card or not; this will also negatively impact your credit score.  If you want to improve your credit score, pay off your credit card debt and stop yourself from charging in the future.
If you are going to have credit cards, make sure that you only carry low-interest rate cards. This will save you money in interest fees. Also, only charge the amount of purchases that you can afford to pay off each month. If you follow these two rules, your credit cards will work for you, instead of you working for their profit.