Most people have little knowledge of their credit score. They may not know what their score is and they most likely have no idea how it is calculated. An individual’s credit score is important, though, since it can have a very distinct impact on his or her financial future.
Credit scores are calculated and reported by one of three major credit reporting companies: Equifax, TransUnion, and Experian. The scoring system used was developed by the Fair Isaac Corporation (FICO) and gives individuals scores that range from roughly 300 to 850. Persons with scores closer to the high end are considered less of a credit risk than those nearer the bottom end of the range.
When an individual attempts to purchase a car, he or she may go to a financial institution to inquire about a loan. The bank or credit union will complete a credit check to determine the credit worthiness of a potential borrower. A person with a poor credit score may qualify for a loan but will face a higher monthly payment and a higher interest range. The same holds true for almost every major purchase, including buying a home.
Nowadays, even employers are checking credit reports. Those with poor scores might be turned away from the job of their dreams due to a poor credit score. Those with higher credit scores will enjoy the benefits of lower monthly payments on loans and lower interest rates. All people should know their credit score and how it affects their financial future.