Your Credit Report Is Your Financial Resume
We’re all familiar with the concept of a resume. It’s a historical record of your work experiences and sums in very quickly what skills you bring to the table. What have you done in the past that’s relevant to make you the best possible candidate for the position you’re interviewing for?
Nothing new here. In fact, it’s somewhat of an evolution of our report cards from when we were children which was an indication of how well we did in class, only this time there are no grades.
What’s interesting though is that as familiar as we all are with report cards and resumes, there’s something else in this world that’s just as ubiquitous but far less understood.
Credit scores are just as important as our report cards and resumes but for some reason so many Americans live their lives without fully understanding what it is or how it works. Therefore, let me take a moment to dig a little deeper into this topic in hopes of clearing the air.
Like your resume, your credit score is a summary of your history but specifically for the way you deal with your finances. For those who aren’t familiar, there are a lot of things that contribute to your entire score but here are some of the most important factors:
- Payment History – 35%
- Credit Utilization – 30%
- Credit Age – 15%
- Account Mix – 10%
- Credit Inquiries – 10%
However, unlike a resume, credit scores do have actual ranges that dictate how good your credit is. In this way, they are more akin to your old report cards. Care to find out what your grade is? Let me spell it out for you:
- 800+: Exceptional
- 740 – 799: Very Good
- 670 – 739: Good
- 580 – 669: Fair
- Below 579: Poor
Now what I’ve referenced above is the general FICO credit categories and what impacts them. There are of course several different scoring systems that various institutions will use for their evaluation but for the most part the FICO standard will have a 90% correlation to what most institutions use. As of May 2015, the national average was 695. Whatever category you end up falling into, understand that it will have significant implications to what you can or can’t do financially in the future. This is the reason why credit scores are so important and why it’s a shame so many people out there aren’t more informed on how to better manage them.
A poor credit score can keep you from getting the loan you need to buy a new house or car. If you’re renting, it can keep you from being able to rent that ideal apartment you’ve been setting your eyes on. It can actually keep you from getting a job in certain cases as well.
Even worse, unlike a bad grade, a bad credit score can actually cost you a lot of money in the long run. If you aren’t being turned down for a loan, a lower credit score will result in higher interest rates ultimately costing you much more money than someone else who has a slightly better credit score applying for the same amount. The terms of those loans can be adversely affected as well only adding insult to injury. Insurance premiums are another expense that can be affected in much the same way.
As such, if you want to be well off financially, it’s absolutely imperative that you pay attention to and maintain your credit score at a satisfactory level. To learn more about how you can make that happen, subscribe to our blog for timely updates on how you can better manage your credit.
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