A credit score is a number used to determine how confident a lender can be in a borrower, based on the credit information reported to credit bureaus.

Excellent Credit Score concept. Chalkboard on wooden office desk Everybody has to use credit, whether buying a new car, renting a home, or even applying for jobs. The fact is, credit is unavoidable.  To be taken seriously as a borrower and for the lowest interest rate, you will need a good credit score.

You get credit for all your credit, good or bad.

We have established that inevitably you will borrow money in the future for whatever high cost items you need in your life, but why spend more than you have to using a loan with high interest? The first thing a lender will look for before offering you a deal is your credit score. Whether you are visiting a bank or a car dealership, the standard way to receive credit history on a customer is through this score.  It is determined by all data pertaining to your past credit arrangements, sent in by previous creditors; such as credit card companies or previous landlords. This score will ultimately determine the outcome of your loan. So let’s talk about what a good and bad credit score looks like and discuss the importance of making good decisions with your credit. Then we will look at what actions affect your score and how the data is collected. When we are finished, you will have a new appreciation for what your credit score can do to help you.

A good credit score’s value is in your interest.

So we know a good credit score will make or break a deal, but what is a credit score? Simply put, it is all of your past credit behaviors from all the agencies you have dealt with who send your information to a credit bureau.  The bureaus then compile the information, assess it, and rank you on a scale from 330-830. A good credit score is somewhere above 700. A score on the higher end of the scale will show a lender you are reliable with money. Some actions that keep your score above 700 are:
  • Paying your credit card bill in full and on time.  Late payments are the biggest and most common mistake people make.  If you don’t have the money, don’t spend it!

  • Paying back all of your loans on time.  The people who lend you money will also report nonpayment or late payment to the credit bureau. Be sure you can maintain these payments for the entire length of your loan before making the deal.

  • Paying your rent on time.  If you are renting your home, your landlord also has the right to report you to the credit bureau. If you don’t pay your rent, or you send it in late, you are subject to a drop in your credit any time you are on a lease.

Take control of your own credit.

There are many actions that will cause your credit score to move on the scale.  Don’t be afraid of your credit but close attention will help you to stay in control of it. Some of the actions that will affect your credit score are listed above such as paying your bills, rent, and loans on time. There are many more actions that will affect your credit, if you are not careful:
  • Opening many accounts in a short time.  When you apply for a credit card, you are asking someone to inquire about your credit history. Unfortunately, credit queries dictate about 10% of your credit score.

  • Closing many accounts in a short time, especially if the cards still have balance. This is a red flag to the credit bureau.  When you close accounts with a balance, you are showing them that you can not afford to fulfill your agreement.

  • Defaulting on a loan.  Not being able to finish a loan agreement is a big problem.  Like I said before, really consider this before accepting a deal.

  • Check your credit score often.  If you don’t know your credit score, there are many services that can show you what it shows and a lot of them are free! Know your score.  In this knowledge is the power to stay debt free and credit positive. I would say check your score at least once a year.

A good credit score will be invaluable to you throughout your entire life.  Use these tips and pay close attention to your behaviors. It is not always clear when you open a line of credit just how long that decision will stay with you.  Always assess your decisions carefully and stay out of trouble!  Click here to see how you can begin building your credit today. Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.