Credit has been around America since the 1800’s, and it won’t be going away anytime soon. Credit is a measure of a person’s ability to repay a certain debt for a good or service that was provided to them before full payment.
Credit is important because almost every financial decision you make will involve your credit.
If you need to rent an apartment, chances are you will have your credit checked. Looking to get a car loan? A lender will need to still check your credit.
Why is Credit Important?
Credit is important because of your access to certain goods such as an apartment rental or a car loan will be dependant on your ability to repay, which is measured by your credit. Almost anytime money is loaned out or a service is provided before payment, your credit will become an important factor for a business or lender to consider.
Credit is important because it gives a business or landlord the ability to tell how “trustworthy” you are of receiving a certain good or service prior to payment being made. This applies to credit cards, loans, apartment rentals, cell phone plans, and much more.
What is Credit?
Your credit is composed of two separate yet important pieces of information: Your credit report and your credit score
A credit report is a history log of all your credit-related activities, past and current debts, addresses, aliases, and much more. Credit reports are multiple pages in length and will have data from the last 10 years present. This data is collected by the three major credit bureaus.
A credit score is a three-digit number rating from 300 to 850, from lowest score to the highest possible credit score respectively. FICO, the largest credit scoring model, takes the information directly from your credit report, plugs it into a “proprietary algorithm,” and produces a three digit number that summarizes your credit report.
Essentially, a credit score is a quick way for a lender to evaluate your “credit worthiness”.
The more negative entries on your credit report (such as late or missed payments), the lower your credit score will be. The lower the credit score you have, the less likely you are to qualify for a line of credit or loan.
Consumers should know the importance of credit and the role it plays in today’s society. Understanding why credit is important can help you qualify for the loan or credit card you need.
If you have less than perfect credit and don’t know where to go, CrediReady can help. Our trusted network of credit repair experts can boost your score and help you qualify for the credit you need. Take a moment to fill out our free no-obligation credit repair inquiry form and start fixing your credit today!