From learning how to count how many cookies there are in the cookie jar to being bombarded with an array of equations that some of us will never use in the real world, our entire grade-school run taught us math at an exponential rate. Although we were o
verloaded with math for approximately fourteen years of our lives, there are a lot of us that never learned one of the most vital forms of math, which is the art of maintaining and building our finances. Upon entering the real world, those of us who have never uttered the words credit and score in unison, are searching for feasible ways to build our credit. So, what exactly is a credit score?
Think of your credit score as your financial reputation. It is the one way a potential lender can determine whether or not you are a trustworthy candidate to lend money to. When potential lenders pull your credit report, they are guesstimating whether or not you are financially responsible. Your credit score determines your eligibility to borrow money from lenders.
Why would I need to borrow money? To answer your burning question, there may come a time when you want to make uber-big purchases (e.g.: house, car, etc.), or you may need to borrow money to cover a large unexpected expense. With purchases this large, it is likely your bank account will be severely affected, or you may not possess that much money in the first place . This is when borrowing money becomes an option.
Both the amount of money you are able to borrow from lenders, as well as the interest rate on your repayment plan, are dependent on your credit score. When you have a lower credit score (e.g.: 300-639), potential lenders are often reluctant to loan you money. Contrarily, when you have a higher credit score (e.g.: 720-850) you are eligible to receive higher loan amounts and lower interest rates. In order to borrow money from lenders and not have a high interest rate on the money you borrow, you have to be deemed financially responsible.
Your credit can affect your monthly car payment, where you live, and even employment opportunities. Do you have goals of someday driving a BMW with a low monthly lease, living in a condo in Manhattan or someday obtaining a Black Card? Unless you are Oprah (or just super-rich), your credit score will likely be a determinant for whether or not you can accomplish these goals. If you are not careful with the maintenance of your credit, potential job offers can be taken away. Being that your credit is essentially a look into who you are, some employers (not all) will correlate your financial reputation with your character. Your credit report can give a potential employer the insight he/she needs to determine how trustworthy and responsible you are. As you can see, your credit can impact a few different aspects of your life.
By now, I hope that you have gotten the point that credit is vital! The need to maintain, build and protect your credit is imperative, in order to prevent financial chaos and stress.