It’s important to understand how to maintain your credit score so when it comes time for you to borrow money — for a home, car or to pay for college — you may qualify for the lowest possible interest rate.
Why Credit Is Important
In today’s world, credit is integrated into everyday life. It is borrowed money that you can use for purchases and then repay the funds back at an agreed-upon time.
- Services such as cable and telephone can be paid for on credit. For example, if you use phone or cable services for a month or two and then pay for them at the end of that period, you are receiving services on credit.
- Loans that allow you to buy a home, a vehicle, or anything else are also a type of credit.
- Credit cards offer what’s called a revolving line of credit: funds you can spend, pay off regularly and have access to again.
Many lenders and even some insurance companies make decisions and charge rates based on your credit score.
Understanding Credit Scores
Your credit score is a number calculated by credit bureaus to describe your creditworthiness.
A credit score is a “snapshot of an applicant’s potential risk at a particular point in time.” Scores fluctuate with time and changes in your credit performance, with the heaviest weight being given to your most recent credit activities. Past credit problems fade as time goes by and recent positive data accumulates.