Who’s up for a little finance lesson? It’s a good one, and arguably one of the most important, so we suggest you grab a pen and paper or open the Notes app on your phone. Today we’re talking about everything related to credit scores. As in, what does it mean, can it ever stop you from buying items and how can you improve it? Naturally, we wanted to give you the best possible advice, so we reached out to Kathleen Entwistle, SVP at UBS Wealth Management, who broke it all down for us. On your marks, get set, learn.
WHAT IS A CREDIT SCORE?
“It’s a number that measures your likelihood of repaying borrowed money. It represents the risk a company is taking in lending you money. Companies that lend money will verify your score on file with one or all of the three major credit bureaus that assign you a credit score. If you have a higher score, you are more likely to be approved for a loan, while if you have a lower score, you are more likely to be turned down for a loan.
WHAT IS THE IMPORTANCE?
“Your credit score is your DNA for financial habits. It will follow you everywhere and become part of your financial situation. A higher score is an indication of good financial habits, and you are more likely to not only have the ability to “borrow money, but also to borrow that money at a better rate because you have better credit. A better rate is a great reason to watch your spending habits and be responsible with your money.
CAN IT EVER AFFECT YOU NEGATIVELY?
“Yes it can! So be careful and start forming good money habits now. Would you like to lend money to someone who may not pay you back? Probably not. Bad credit can prevent you from buying highly sought-after or even essential items, such as loans for cars and homes.
“Poor credit can also prevent you from getting major credit cards and retail store cards. Credit is convenience, [and] credit is also access; sometimes we have to make a purchase that we didn’t expect, and a credit card can replace cash in a snap. It’s hard to build up good credit once you’ve damaged it. If you have a low credit score, the best way to fix it is to start good habits now and wait. It takes time to build it!
WHAT CAN YOU START DOING *TODAY*?
“There are many ways to improve your credit score.
1. “The most important thing is to pay your bills on time!” If you are late for a payment (more than 30 days), it will be negative and will be reported on your credit report and will remain there for seven years. Think of it as your report card.
2. “Pay off your debts and keep your credit card debt low. Lenders want to know that you are not using your credit cards to the max and that you know how to manage your debts.
3. “Don’t apply for credit unless you need to, and don’t do it often. Multiple requests can make it tempting to overspend, and too many requests can negatively affect you as well.
4. “Make sure your credit report is accurate. If you’re paying off a lease on a car or closing a credit card, make sure that’s reflected on your report.
HOW CAN YOU BEST TRACK YOUR CREDIT SCORE?
“The best way to track it is to understand and follow the real number. According to Equifax, if you are exceptional, your number will be between 800–850. That’s a really great number, and about 21% of the population will fall into that category. Twenty-five percent of the population falls into the very good category with a score ranging from 740–799. I challenge you to set a goal. The goal is to be so exceptional with your financial habits that not only do you increase your chances of being approved for credit, but you also increase your chances of being offered the best rates.
WHAT ARE THE BEST RESOURCES FOR YOUR CREDIT SCORE?
“Experian, TransUnion and Equifax are the three bureaus that provide information about you and your spending and reimbursement habits. You can request a free report once a year from each of the three offices. A good strategy might be to request one every four months, so you can periodically review your activity and how your behavior is affecting your count.
ANYTHING ELSE YOU WANT TO ADD?
“Pay attention to your credit score from the start! It’s so easy to jeopardize your credit score and so hard to raise your score once you’ve made a few bad decisions. Think of your credit score as a reflection of yourself, your level of responsibility, and your ability to make sound financial decisions. Your credit score is your financial brand and your financial reputation. Do everything you can to protect it.
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