Credit scores have a significant impact on an individual’s financial health and economic well-being. Moreover, they serve as indicators of how well someone handles their finances and manages their credit. As such, it is crucial to understand the importance of a credit score and how to build and maintain creditworthiness. With that in mind, here are some essential things to know about building and maintaining a good credit score.
Credit Scores Can Impact Housing and Employment Opportunities
While most people know that credit scores affect a person’s ability to be approved for a credit card or loan, they may not know that prospective employers and landlords can run credit checks while considering an application. In the case of employers, they must ask for permission beforehand to review an applicant’s credit and, if they decide not to hire someone based on this info, they must inform the applicant of the reason for the decision. Landlords, however, are not required to get permission before reviewing a credit file. Yet, they are required to notify a prospective tenant if they deny an apartment, change the terms of a rental agreement or lease, or request other stipulations based on their creditworthiness.
Check Credit Reports Regularly and Correct Errors ASAP
Every person should review their credit reports regularly and ensure the information is accurate. If errors are present, such as a fraudulent account or an erroneous late payment record, it is up to the individual to report the error(s) and ensure they are corrected.
Credit Scores Are Calculated From Several Factors
FICO scores, which are universally recognized credit scores, are calculated based on various factors, including payment history, credit utilization ratio or debt-to-credit ratio, length of credit history, the mix of credit accounts, and the number of new credit items present.
Many things can affect a person’s credit score. In the wake of COVID, a record number of people have lost their jobs, suffered employment setbacks, had to declare bankruptcy, or faced unforeseen economic hardships. Meanwhile, others may lack a credit history due to their age or circumstances, such as entering the workforce for the first time, a recent arrival in the country, or someone going through a divorce.
Regardless of the situation, everyone needs to be familiar with the importance of their credit score and take steps to build and properly maintain it. The best advice in regards to creditworthiness remains steadfast–Seek out credit and use it responsibly.