Is credit really important in this day and age? Actually, your financial life will undoubtedly always be impacted by it. But what is it?
Credit is one party providing money or a resource to another party with the understood promise of repayment. The more trust that is built through timely repayment, the more credit one will earn. Essentially, it is based on trust; it is based on promise. It tells banks, utility companies, insurers, lenders and even cellphone companies how trustworthy you are. Whether you understand its principles, or not, credit will impact your financial life. It becomes our responsibility, then, to educate ourselves about credit, credit scores and learn how they impact us.
Good vs. Bad
One of America’s three largest consumer credit reporting agencies, Equifax, has outlined the simple differences between good and bad credit. We actually outlined the benefits of good credit here. For starters, a good credit score will impact your ability to apply for loans, by showing to creditors that you are a low risk. The less risky you are (to creditors) the more likely you are to qualify for higher credit. Good or bad credit plays a significant role in your life.
No matter where you go or what you do in life, credit will most likely be a part of your financial journey.
Debt can increase your credit score or it can decrease it, the decision is yours.
Investopedia defines debt as the amount of money borrowed by one party from another. Once you understand the importance of credit, you can learn how to reduce your credit card debt and begin to improve your credit score.
As knowledge is power, credit will always be part of your financial power. In simplest terms, it can significantly impact your ability to do those activities that affect your quality of life. It affects:
- If you will be approved for a new loan.
- How potential landlords decide on renting to you.
- The way potential employers will consider you for a new job.
- The interest rate and fees you are charged on loans.
- Your student loan eligibility.
- Your ability to receive private loans.
- The rates you will pay for vehicle and homeowners insurance.
Who would have thought that just three simple numbers could have so much influence over our lives?
Would you like to learn more about the credit, credit scores and how to take control of those three numbers?
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