Your credit score is calculated based on the information found in your credit report. This includes things like the length of your credit history, the variety of types of credit accounts you have, your payment history, and the amount of debt you have versus the amount of credit available to you. Your credit score is incredibly important and powerful. In fact, most people may not realize how much a low credit score can affect their future. Having a high credit score can not only save you money but it can open up opportunities that may not be available to someone with a lower score.
When you apply for a loan, a credit card, an apartment rental, a cell phone plan, an insurance plan, or open a utilities account for water or electricity, the company checks your credit rating. If you have a great credit score, the company will be more inclined to do business with you. When dealing with loans for banks, this could translate into better interest rates that save tens of thousands of dollars per year.
On the flip side, having a low credit score changes things drastically. When you go to apply for loans or credit cards, you will be offered higher interest rates because you are deemed a higher risk. This will cost you a lot of money in the long run if you start incurring a balance. If your score is low enough, you might even be turned down completely and be forced to find alternative routes for financing that carry extremely high-interest rates. There are other pitfalls to having a low credit score. When applying to rent an apartment, purchasing a cell phone plan, or opening a utility account, you may be asked to pay an extra deposit. This extra deposit is typically refundable but is used to ensure that if you fail to pay, the company will have a way to recover what you owe. In a nutshell, a high credit score makes life easier.
One of the best ways to keep a healthy credit score is to always pay your bills on time. You should also be checking your credit report frequently, so if a problem appears you can call the company responsible to remedy the situation as soon as possible.