Power of Credit
Blog post description.
Managing Credit & Building Credit > Power of Credit
What is Credit?
Credit is a systematic way to rank an individual's likelihood of repaying an outstanding debt.
A Credit Score measures how well someone manages their debt and repays their obligations.
Credit score - A systematic way to rank an individual's likelihood of repaying an outstanding debt.
A credit score can rank from 300 to 850. Borrowers with scores above 700 are generally considered "Prime" and receive the best interest rates when they borrow.
How Does Credit Work?
Credit is established when a person applies for, and receives, the ability to borrow money in order to make purchases today, but pay the money back over time.
Over time, the history of how a person repays that debt is recorded by the lender and reported to Credit Reporting Agencies. These agencies have created a formula that determines if a person is a "good" lending risk, or a "bad" lending risk. The 3 digit number this formula produces is known as a Credit Score.
People with Excellent credit scores receive higher limits and lower interest rates when they borrow money. People with Poor credit scores struggle to get approved for loans.
Not Just For Borrowing Money
While a credit score is a way to rate how well a person repays their debts, it isn't only used for lending money.
Many employers check an applicant's credit report to ensure they are managing their finances responsibly.
Insurance companies check credit scores because they claim there is a correlation between bad credit and the likelihood a person will file a claim.
Landlords
Cell phone carriers
Utilities companies
Good credit doesn't just keep money in your pocket when borrowing, it can also qualify you for lower, or even no, deposits.
