Having a good credit score is critical for so many things in life: from applying for a loan for a new car or house, to applying for a new credit card, how much interest you’ll have to pay on a loan or on insurance, or applying for a student loan to help get you through college.
According to a study from the Corporation for Enterprise Development (CFED), 56% of Americans have a subprime (a.k.a. bad!) credit score, making understanding how credit scores work and how to maintain a healthier, high credit score is critical for economic development not only for the individual, but for the health of this country’s economy as a whole.
What Is A Credit Score?
Your credit score is basically a mathematical calculation of the predictability of risk. In other words, when you have a credit card or have any kind of bill that requires payment, you’re making a promise that you will pay it back by a specific date. If you don’t pay, then you are penalized. To the creditors, you are now at a higher risk of non-payment again in the future. There is no room for a one-time error in these mathematical equations: you mess up and don’t pay your bills one month and your credit score suffers.
Credit scores range anywhere between 300 and 850, with 850 being the highest score one could have, also making that person at the lowest risk for defaulting on their loans or other bill payments. Having a significantly lower score sends a red flag to potential creditors that you may not be trusted to actually pay back the money you promised, giving those creditors doubts on whether or not to even approve your loan to begin with. Or, perhaps they’ll approve it, but at a significantly higher interest rate.
