Have you checked your credit score lately?
The one thing that most of us forget to think about when it comes to personal finance is our credit score. Yet this could be the most importance factor in our lives.
“Procrastination is like a credit card: it’s a lot of fun until you get the bill.” – Christopher Parker.
What’s the big deal about your credit score? Why should I even care bout this number? What does a credit score really mean?
Your credit score affects your pocket.
A high credit score is all about putting more money into your pocket. The unforgiving truth is that a poor credit score means that you’ll have to spend more on interest payments throughout your life.
Why will you spend more money on interest? You’ll get destroyed on interest rates that you pay for a car and home in the future because you’re not to be trusted with money. You can argue that you won’t make any of these purchases until you have the money fully saved up, but let’s be honest. Most of us do acquire a car loan or at the very least a home mortgage in our 20s. Financing a home or car is not rare at all.
Without a credit history or with a poor credit score, the lender will be very hesitant to loan you the money. They’ll either ask you for a co-signor or charge you a higher interest rate to mitigate the risk of you not being able to pay the full amount back.
Basically, you’ll pay LOTS more money on interest than you even want to think about. All this because the person lending you the money looks at a number that indicates to them that you’re essentially not to be trusted with borrowing money.
This number was created when you were in your 20s enjoying life. It sucks, but that’s just how it works. The good news is that you’ll learn what’s a good credit score number and how you can build yours back up very soon.
Back to the original point. Why do you have to spend more money on interest just because of a low credit score? How does this even make sense?
Why you should care about your credit score?
Let’s look at a realistic example when it comes to why you should give a damn about your credit score:
Compare two of your closest friends, Jack and Amir. Your friend Jack has a history of taking forever to pay you back and always coming up with excuses for not having the money. Jack also has no shame when it comes to asking to borrow money fairly often.
On the other hand, your friend Amir rarely borrows money from you, unless he absolutely needs the money. When he does borrow money he makes sure to pay you back the next day or as soon as you ask for it.
A few months down the line both Jack and Amir come over to see you on the same day asking you to borrow $1,000 for a new car. Jack assures you that he’ll pay you back. Amir promises to pay you back in exactly 30 days.
Amir is trusted with money so you decide that you will loan him the cash but you’ll charge him a small interest rate. Jack, you don’t even want to loan the money to. You know that he might not even pay you back and you’re concerned about when you’ll see the thousand dollars again. You might not even loan him the money. If you do loan him the money you’ll charge him a high interest rate because you want to ensure that you get your money back at all costs.
What does this example prove about your credit score? Why should you give a damn about your credit score from this?
This example shows you the significance of a positive credit history and that you need to build your credit as early as college. If you’re trustworthy and build up a history of paying back money when you borrow it, you’ll waste less of your hard earned money on interest. This will be reflected in that three-digit number better known as your credit score. A higher credit score will mean that you’re to be more trusted with money than someone with a low credit score.
Of course the lenders will hate you because they make less money off you. Your bank account will thank you.
I know that thinking about your credit score in college or when you’re 24 and making real money for the first time is like thinking about buying a station wagon and having kids. Just please take my word for it. If you improve your credit score now, you’ll be 100% glad that you did in the future.
How do you check your credit score?
We have a few options available if you want to check your credit score to see where you stand.
How do you improve your credit score?
I’m here to help you build for your future and also to fix your past mistakes. We all mess up. We all also deserve a second chance. What would life be without second chances?
Personal finance is all about improving your past mistakes to save more money in the future. The best feature about your credit score is that it’s not a constant. You can fairly easily improve your credit.
I wanted to share four quick HIGHLY effective ways that you can improve your credit score if it sucks right now:
1. Pay down your debt.
The obvious solution to building your credit score is to get aggressive with paying down your debt.
This topic is covered a million times on Studenomics and I’m assuming that your goal is to become debt free so I’ll just move on to the other tips for improving your credit score.
2. Fix errors on your credit report.
You need to check your credit report so that there are no mistakes on it. Human beings make mistakes. Some credit report errors are as minor as a typo. I’ve also heard of stories where one late payment is counted twice or where one type of loan is counted twice. If you notice any major or even minor errors you need to get them fixed immediately. If you would like to learn more, visit here to learn more about fixing your credit.
Where can I check my credit report?
The best site to check is annualcreditreport.com. This website is approved by the U.S government. There are many other sites that try to rip you off. This is the most trusted source.
When you get access to your credit report you need to look over it meticulously to ensure that everything is correct. This is one of the most important documents and it needs to be treated as such.
When getting an issue resolved with your credit report I have one important piece of information for you. Instead of trying to get the credit bureau to fix the issue, it’s often recommended that you contact the source (usually bank) that made the error.
The reason for this is that the source reported the mistake in the first place. Since banks report their information to the bureau every 30 days, they’ll just report the same wrong information if you don’t get it corrected.
Deep thought: Do you know the difference between a credit score and a credit report? Your credit report is the actual data on your credit history. Your credit score is basically the conclusion of your credit report in the form of a number. This number is determined by some complex credit-scoring model. Oh and your credit report doesn’t include your score. I know this isn’t the greatest topic for a first date, but understanding this is very important.
3. Make your payments on time always!
You can’t dwell on the past because shit happens. Moving forward you need to do everything humanly possible to make your debt payments on time. You don’t want your score to be hurt any more than it already has been. If you want a good credit score number you know what you have to do. I’m not going to preach what you already know.
4. Get another loan (although very risky).
Sometimes the reason for your poor credit score could be the fact that you’re really young or just haven’t built up a long enough credit history. You could be doing everything right and the only thing holding you back is time. This is why the recommendation is to get another loan so that you can work on your credit score.
The major setback with another loan is obviously the fact that you could get yourself into unnecessary debt if you get out of control (we all get a little wild sometimes).
Quick thought: Have you ever heard a friend justify a car loan as a way to build their credit history? I’ve heard this excuse far too many times. I really don’t want you guys to get yourself into debt just to “build credit.” My quick thought is to basically ask yourself when the time comes up if you’re really building credit or if you’re justifying acquiring debt?
That’s how you can improve your credit score. If you start taking action now, you’ll see some serious improvements in the near future. What are you waiting for?