What will my Credit Score get me?

You may have a good job and lots of money in the bank, but if you have neglected to pay your bills, banks will probably treat you less favorably than someone with a lower income. Banks are happy to lend you money, as long as they get it back with interest. But before they hand over the cash or credit card, they need to judge how likely you’ll be able to pay them back. They figure this out by accessing something called a credit score, or credit rating.

A credit report is a report card of your financial behavior. It is an individualized record of your credit and payment history. Banks check your credit score before they lend you any money, from credit cards, to a mortgage or a car loan. Some employers have even started doing credit checks on potential employees.

Having no credit rating is almost as bad as having a poor credit rating because banks can not tell how well you are able to manage your finances. Having a bit of debt goes a long way to establishing your credit history. If your debt is not too high and you pay your bills on time every month, a little bit of debt can be to your benefit.

If you have a good credit score, the world is your oyster. Banks will lend you money at a good rate and offer you credit cards with special perks or high credit limits. You will likely have no trouble getting approved for a mortgage and lending institutions will be falling over themselves to hand you a car loan.

Let us say on the other hand, you have missed a number of payments, not just by a few days, but by months. Maybe a collection agency has been leaving you messages. Your credit score has been plummeting and now banks are less anxious to hand you their precious money out of fear that maybe you will not pay it back. This does not mean you can not get approved for a credit card or a loan. It just means you are seen as a bigger risk and banks will attach more conditions, such as a lower credit limit and higher interest rates to minimize their risk.

If you have defaulted on loans or declared bankruptcy, your options are even more limited. Few banks will approve you for anything other than a prepaid credit card. A prepaid credit card is a basically a re-loadable debit credit card. To use a prepaid credit card, you will have to deposit money in a credit card account before you can use it.

Clearly, your credit score has a huge impact on your life and managing your debt properly can go a long way to getting you better rates and fees on loans and credit card in the future.