Credit is a pretty important factor in a lot of decisions, but does credit really matter? Credit will affect a lot of decisions in your life, including mortgages, car loans, and credit card approval. If it’s important for you to secure any type of funding to purchase something, then credit more than likely will be a factor. However, even if your credit is bad, you can still get approved for some loans, just not at as great of a rate as you could get.
If you don’t plan on using debt to get you through some of the bigger purchases in life, then your score may not be as relevant. In the end, it does matter what your score is anytime you try to secure any type of credit. The lower your score is, the worse the rate you will get from a lender.
What else matters?
Besides your credit score, there are some important factors that will go into your decision. One thing that a lot of creditors will look at is how stable your income is and how much of it goes towards other debt. This is called the debt to income ratio, which is just the amount of debt you pay each month divided by the amount of income you make each month. Typically, this should be under 60%, but the lower the better.
If my credit isn’t good, what do I do?
First, you should know what factors go into your score. Knowing this can consciously help you improve your score and make you aware of what factors matter. The main factors are the average length of your credit, the number of accounts you have, the total percent of revolving credit used, and your payment history. A big part of your score is just making sure you make your payments on time and don’t overuse your credit card. If you have a high revolving credit balance, work on paying that off. This is also good because typically revolving credit has higher interest rates than loans.
While your credit score may not be the only thing, it’s definitely an important part of many lending decisions. If you focus on improving the factors that make up your credit, over time it will fix itself. The good news is that many of the items that show up on a credit report aren’t permanent. Waiting until the negative points on your report disappear and continue to keep a clean record will improve your score.
