What is my Credit Score & Why Should I Care?

For most people, it's socially unacceptable to rate others using a number system.

For credit agencies, they get paid to do it.

Your credit score is one of the more important financial things about you and chances are, you didn’t even know it existed. Or, you had very little knowledge of it.

Either way, I hope to clear some air and give you a full explanation of why credit scores are important and how they can really impact your day-to-day life.

To start, what the heck even is a credit score?

Your credit score is a number (between 300-850) showing your “creditworthiness” or, in normal people's words, how likely you are to repay borrowed money.

The five most common things the are affected by your credit score are:

1. Loan approval

This includes mortgages (house loan), student loans, auto loans, personal loans, etc etc.. When you have a high credit score, a company is more likely to approve you for a loan. So, unless you want to pay all cash for a home, you better have a high credit score.

2. Interest rate

Interest rate is essentially the cost of borrowing money. For the sake of time, we won’t go into the specifics of interest rates, but simply how credit scores affect it. The higher your credit score is, the lower your interest rate, meaning the less it will cost you to borrow money. For context, if your interest rate on a (30 year) $100,000 mortgage is 3%, then you will pay $90,000 in interest over the lifetime of the mortgage making the total you paid $190,000. If the interest rate was 6% instead, you’d pay $180,000 over the lifetime of the mortgage for a grand total of $280,000. 

That is a lot of money.

Have a high credit score for lower rates.

2. Credit card approval

The higher your credit score, the easier it is to get approved for all credit cards, including the ones with better benefits. Pretty simply. Better score, better cards.

3. Renting an apartment

A higher credit score can make it easier to get an apartment. For some landlords, if your credit score is too low, they won’t rent to you at all.

4. Insurance premiums

A higher credit score can also mean lower auto, home, or renters insurance premiums.

*Add all these things together, and I think it’s pretty important to care about your credit score.