Investments & Loans

Yes it does. It can greatly affect your ability to:

1. Rent an apartment
2. Qualify for a loan
3. Even Get a job

Your credit score also affects how much you pay for insurance, interest and even on your cell phone contracts.

What is a Credit Score

Your credit score is essentially the likelihood of you paying your bills on time. It is compiled by Fair, Isaac & Co. (FICO) and the scores usually run up to a maximum of 850.

Around half of people have a score of approximately 700. If you can score around 700 you will impress the following groups and save yourself hundreds of thousands of dollars over your lifetime.

Who matters and who cares about credit scores?

1. Lenders
Good credit helps you qualify for better rates on mortgages, car loans, credit cards.

2. Insurers
Most car insurers use your credit score to help determine your rates.

3. Landlords.
More and more these days landlords will use your credit score as part of your assessment criteria when assessing if you are a good credit risk to rent with.

4. Employers.
Similar to landlords, employers look at your credit score as a personality strength or flaw. According to the society for human resource management 35% of employers look at credit scores.

5. Cell Phone carriers.
Standard proceedure with cell phone carriers is to check your credit score before approving your new contract. If you have a score problem you may not be eligible or may miss out on the best rates.

How to build your score

For young people in particular they find themselves in the difficult situation of having no credit history which counts against them when they want to apply to start building one.

The best and easiest way for a young person to start building a credit history is with a credit card. Pay on time. And do not max out your limit. And you can start building a good history.

Other tips for building a strong credit score:

1. Pay on time. Always, always, pay your bills on time. Defaults and late payments hurt your score. 35% of your score depends on payment history.

2. Do not max out your credit. 30% of your score is based on how much you owe. You also want to keep the amount of credit you are using no higher than 30% of then amount you can actually borrow (credit utilization ratio)

3. Start young. 15% depends on the age of your accounts.

4. Do not open lots of different accounts. Try and keep you accounts going. Avoid opening lots of new accounts. 10% of your score depends on new credit.

5. Credit cards are better than installment loans like car loans. The last 10% depends on the style of credit you use. The type of credit that scores best is where you control the repayments and can show disciplined financial management.

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