Why Credit Scores Matter More Than You Think
Before we dive more into the benefits of a credit card, we need to take a deeper look at credit scores themselves. Understanding what credit scores are and why they matter so much now will hopefully drive home the importance of credit cards as well, since the two are so fundamentally linked.
As mentioned before, every individual has their own credit score, and this number represents your “trust-worthiness” in the eyes of banks and many companies that you may wish to borrow money from or make large purchases with. The number itself is determined from many, many factors - most within your control, including:
Payment history
Total amount owed
Length of credit history
Types of credit
New credit
The important thing to know is that the decisions you make, in regards to spending and borrowing money, all contribute to this credit score. Being responsible with your spendings will no doubt pay off in the long run. However, we've all made our fair share of mistakes when it comes to finances - so if you do have a bad score, don't fret, because there are many ways you can slowly bring it up. But if you do have a bad score, there are tons of ways you can slowly bring it up, with responsible spending habits.
The next question you probably have is, “what actually is a good or bad credit score”? While this can be different depending on the bank or person evaluating your score, there is a generally-agreed upon range you want to be in: somewhere above 700 (in a scale of 300-850). Of course, the higher your score is the better, but there is no reason to stress about getting a “perfect credit score” - as long as you’re at least in the 700s then you’re doing great. Once you do get into that upper end of the score range, you get to reap the benefits - lower interest rates, better offers (we’ll get more into this soon).
Chart made by Experian
Sticking to responsible habits, like paying your bills on time and not maxing out your credit cards, will slowly raise your score over time. Meanwhile, mistakes like missed payments can result in dropping your credit score quickly. Unfortunately, it takes much longer to raise your score than it does to lower it, and it’s much harder to bring it up than it is to make it fall. But if you do start out with good credit habits - always paying bills on time, keeping the same cards/accounts open and consistently used - then you’ll start with a good score too and life will simply be easier for you. For more information on how to bring up your credit score, or how to maintain an already good one, check out these resources. Below is a sample of the actions that you can take and their effects on your credit score:
By the way, if you already have a credit card and are wondering how to actually find out what you’re credit score is, there are several ways to find out. Many personal finance tools - like NerdWallet and Mint - provide credit score updates on their websites. They’ve also got a whole host of other helpful features, such as budget tracking, account management, and even personalized advice on how to save more. You do need to link your bank account information, so make sure to only use websites you trust (the two linked here are verified companies). Never pay to see your credit score! This can always be done for free, so anyone who tries to get you to pay for that service, or any other services like a “credit score boost guarantee”, is very likely a scam. Always make sure to double-check a website or app is a trusted source before providing any personal or financial information.
