Credit scores are they important? Some will tell you they are. Others will say they are not. But who is right? I think somewhere in between is the right answer. I’d like to clear up some myths about credit scores with everyone. My goal is to open people’s eyes to the importance of a good credit score. Finally, I will share with everyone my personal views on scores and my own score.
What is a good score?
Well, this will honestly vary by a few points depending who you ask and where you look up the information. The chart below is a very good example in my opinion.
As we can see this chart breaks it down very nicely to see exactly where we would fall based on one’s score.
Why is a credit score important?
There are a few reasons why credit scores are very important. Any job that requires a clearance will check the person’s credit score. This could affect if they are able to even get a required clearance for the job. Some companies now check credit scores and will pass over someone who has a low credit score. Having a good credit score can save you thousands of dollars on a mortgage. The better your credit score the lower your interest will be on a loan. That goes for cars and personal loans as well. As we can see a credit score can have some serious effects on your life.
I often run into people that just can’t believe that you can have a good credit score and have zero debt. The biggest myth I see is people really believing that you must have a ton of debt to have a good score. This mentality could not be further from the truth. For this let’s take a look at how they calculate a credit score below.
Broken down there are five categories that make up your credit score.
- Payment History: Your account payment information, including any delinquencies.
- Credit Utilization: How much you owe on your account.
- Credit Age: How long ago you opened your accounts.
- Different Types of Credit: The mixture of accounts you have opened.
- Number of Inquiries: Your pursuit of opening more accounts.
Now we know that really only about 30% of our credit score is made up by how much debt we have or don’t have.
My personal views
I don’t think caring about having a good score means you are looking to get into debt or are in debt like I often see people assume. I also don’t think one should try to get into debt for the reason of “improving their score”. I think in both mentalities the individual loses. No one needs to get a personal loan or a car loan to improve a score. That is just them being irresponsible with money and using a credit score to justify their actions. I do think having a good score is important in many ways. I personally don’t actively try to improve my score. I simply keep zero debt, use my credit cards to pay regular bills and pay them off in full at the end of the month. This and just time will improve your score.
What is my score?
First, I’d like to recommend using credit karma to track your credit score. It is completely free and has two of the three credit bureaus. Did I mention it’s FREE!! Well below is my two credit scores as of May 10th 2017. Again, I don’t actively try to improve them. I simply pay my bills on time.