When it comes to personal finance, we’ve all got loads of ways to save and invest better. While we tend to focus on easy-to-understand options like frugal spending and debt reduction, sometimes it’s easy to forget that options like a better credit score will bring money into your life just as well. The thing is, a better credit score has effects that aren’t easily seen. It can take a lot of time to notice how a better credit score can improve your financial life. But the end result could be tens or hundreds of thousands of dollars left unspent, for you to save, spend, or invest as you please. It’s a pretty cool process that you probably already understand somewhat. For details, read on below.
First of all, you’ve got to understand what a credit score is. It’s a three digit number that is given by three different credit reporting agencies. In fact, you have three credit scores, because each of these companies scores you a little differently. What are they scoring you on? Your credit behavior. Every time you apply for a new credit account, pay off a balance, or let a bill go past its due-by date, these behaviors are reported to the credit reporting agencies. These guys do this job because they tell all the lenders you’ll ever deal with just how likely you are to pay back your loans on time. If you have a low score, it means that you might not always pay on time, so the lenders will charge you more money in interest and fees.
To repair a bad credit score, you’ve got to change the behaviors that result in the bad score in the first place. This means paying your bills on time, not carrying big balances on credit cards, and spending only the kinds of things that you can afford with cash, not credit. The more you are able to live beneath your means, the better your credit score will be. Fast credit repair companies are also an option. They can help you remove negative marks from your credit histories, which are weighing down your credit score.
Whatever method you use to improve your credit score, make sure to do the work. In the end, it’ll make a lot of difference in your life, especially when it comes to how much money you spend for normal loans. Let’s say you want to buy a house. The person with great credit might pay interest of 4% for the loan, but the person with bad credit might pay 9%. Over the course of years, this will mean tens of thousands of extra dollars paid by the person with bad credit, all for the same house.
You can see that good credit means extra money in your pocket, and often in ways that you don’t recognize at the time. This is a gradual process. Bad credit gives you lots of saving opportunities, especially as you get older and start to have more complicated finances. It’s something that everyone should think about.