Our credit scores tell lenders how risky it is to lend us money (i.e., how likely we are to pay them back). We're assigned a number, typically 300–850 – the higher the better. Many people use their credit score as a proxy for their financial well-being. I wouldn't go that far.
Why Should We Care About Our Credit Score?
Credit, or the ability to take out debt, is an important part of our financial well-being. It allows us to buy a home, purchase a car, start or fund a business, and supports us in the case of the unexpected when our savings aren't enough. When we can and do take out debt, typically, the higher our score, the lower our interest rate. Having a “good” score can save us thousands and tens of thousands of dollars in interest. On the next page I show you an example.
Also, many landlords do a credit check before accepting your application, 29% of employers check your credit score before hiring you, and insurance companies may even price your policy based on your credit.
How Your Credit Score Affects Your Mortgage Rate
Note: APR rates as of November 5, 2021. Assumes a $300,000 loan principal amount.
Source: Bankrate and FICO.
The Quickest Way to Increase Your Score
There are currently three credit agencies: Equifax, Experian, and TransUnion. Each one of them has a credit report with information on your debt (and payment history), bank ...
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