Everyone is always talking about credit scores, but why does your credit score matter?
Do credit scores even matter at all? Well, if you care about money, your credit score matters.
Let’s not be hyperbolic and say that bad credit will ruin your life, but it definitely does matter.
How much your score matters really boils down to how you want to live your life. Do you plan to use a mortgage to buy a home or are you going to buy a house in cash?
Put simply, if you plan to borrow to buy a home or a car, then your credit score matters, and an excellent credit score could easily save you thousands of dollars. If you don’t know what your credit score is, then that’s your first step.
Make sure to use Credit Karma or Credit Sesame to check your credit score for free! I use both.
If you need to increase your credit score quickly, it might be worth looking into Experian Boost. It’s a free service that can quickly improve your FICO 8 credit score by including recurring monthly bill payments on your credit report. Check out our full Experian Boost review to learn more.
Most people will borrow money to pay for school or a home. Fewer people decide to forego borrowing money altogether. There’s no right or wrong answer, but most people will have a strong preference.
If you’re part of the second group, have no debt and don’t plan on using loans of any type (including mortgages), then your credit score does NOT matter all that much.
Here at The Finance Twins, we recognize that everyone is different. Some people have no problem with not owning (outright) the house they live in or the car they drive. For others, this drives them crazy. Let’s take a look at a few different areas where your credit score can make a difference.
How credit scores can affect: Personal Loans and Student Loans
In order to borrow money, your credit score is used by the lender to determine how likely you are to pay back debts. This is because a large component of the credit score is from on-time payments. If you have a high credit score, you have a good track record of paying your creditors. Good credit scores are rewarded with lower interest rates.
For student loans, this mostly applies to private student loans. Federal loans don’t have interest rates based on legislation passed by the government, not your personal credit score. In addition, if you ever plan to refinance your student loans in order to save money, you’ll get the best rates possible with a high credit score.
Related: read our full Upstart Review if you need a personal loan.