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The Importance of Knowing Your Credit Score

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The Importance of Knowing Your Credit Score
By admin November 9, 2022
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Why Your Credit Score Is Important 

 

Your credit score is among the relevant aspects of your financial condition. You need to learn and understand the different things about your credit score because it can affect your financial decisions and determine your financial future. If you really want to have a successful credit reputation, you need to have a working knowledge of how your credit score works for you. Parallel to this, you need to focus on improving your skills in handling your expenses and start thinking about investing your extra income in other streams of money like asset trading in stocks, bonds, or CFD trading as well.

A credit score determines your creditworthiness as a borrower. Businesses and financial firms use credit scores to know if a person is responsible in handling their finances. The highest possible credit score that you can get is 850, while the lowest is 300. There are different kinds of credit score but almost all lenders and businesses use the FICO score, which was developed by the Fair, Isaac and Company, Inc. The software used to compute FICO scores is proved to be the most accurate among all the methods in calculating credit scores. 

 

Your credit score is composed of five important factors: Your payment history, amount you borrowed, credit history length, new credits, and kinds of credit that you used. Your payment history, which composes 35% of your credit score, includes the details of your account payments, cases of delinquency, and other adverse public data. The amount of money that you borrow and the length of your credit history comprise 30% and 15% of your score, respectively. Meanwhile, your percentage for new credit and the types of your credit of your credit score are both 10%. Contrary to what some people think, income is not a reliable in computing credit scores. Even if a person has a good salary, they may not pay their bills and financial dues promptly, which can impact their credit score. 

 

You can check your credit report to know your credit score. Your credit report is the document that contains your credit history and other important financial information from your banks and creditors. Together with all these details is your computed credit score. 

 

High credit score Benefits

 

Having a high credit score has many benefits. You can qualify for loans that have low rates and monthly payments and apply for insurance easily. A good credit score also gives you a better chance to have a high-paying job because businesses use credit scores to evaluate their applicants. This means that you can earn a monthly income, and you can also invest some of that money to earn more through investments such as CFD trading high-yield savings accounts, or mutual funds.

If you earn a low credit score, this means that you have bad credit. You cannot qualify for most conventional loans and you may have a hard time applying for an insurance. Simply put, an unimpressive credit score limits your financial opportunities. Paying your bills on schedule, avoiding new credit, and budgeting your money are among the efficient methods to boost your credit score. But if your financial situation may prove too difficult to handle, you may need to seek the help of a credit counselor.