Connecting Your Credit Score To Your Financial Goals
The most searched-for personal finance question is, "What is a good credit score?" has an average of over 160,500 searches every month. So, if you don’t understand your credit score, you’re not alone!
Credit scores are a rating of how you manage your current credit, and they’re checked by lenders who assess your creditworthiness and determine their confidence level in getting their money paid back.
Credit scores are calculated between 300 and 850 points by the three main credit reporting agencies—TransUnion, Equifax, and Experian. Regardless of where your score stands right now, a consistent payment history, keeping your debt low, and avoiding too many credit requests will gradually improve your credit score over time. The better your credit picture looks, the more likely you are to get approved for the financial opportunities that will help you reach your goals.
Your credit score is more than just a number; it’s a powerful tool that can either help or hinder your ability to achieve key financial goals, from buying your first home to securing low-interest rates on loans. A score of 700 or higher can make you eligible for better offers, rates, and financing options.
Whether you’re looking to buy a car, apply for a mortgage, or make another significant purchase, building a solid credit score is essential. You can easily check your credit score through one of the three major credit bureaus: TransUnion, Equifax, or Experian.
Let’s break down how you can boost your credit score and align it with your financial goals.
How Are Credit Scores Calculated?
Your credit score is determined by several factors, with payment history accounting for 35% so staying on top of your bills is crucial. The amount of debt you carry makes up another 30%. The remaining factors include the length of your credit history (15%), the mix of credit types you have (10%), and recent hard credit inquiries (10%).
Regardless of where your score currently stands, you can improve it by consistently making payments on time, keeping your debt levels low, and limiting new credit inquiries. The more effort you put into improving your credit, the better your financing options will become in the future.
Plan Ahead for Your First Home and Future Loans
A strong credit score is one of the keys to qualifying for a mortgage or a car loan with favorable terms. While lenders also look at your income, debt, and other financial factors, a solid credit score can make a huge difference in the loan amount you qualify for and the interest rates you’ll be offered.
Before applying for a mortgage, it’s wise to improve your credit score and reduce any outstanding debt. Some experts caution against applying for a mortgage with an average credit score, as this could result in higher interest rates or even rejection. Start building your credit now, and be strategic about large purchases to increase your chances of loan approval.
What Landlords Look for in Renters
If you’re renting, your credit score still plays a major role in the approval process. Most landlords look for a minimum credit score of around 620, which falls into the “Fair” range. However, meeting this minimum doesn’t guarantee you’ll be approved. Some property managers may require a higher score, and if your score falls short, you may be asked to provide a cosigner or pay a larger security deposit.
Starting early and making regular, on-time payments is the best way to build a strong credit history, which can help you get approved for rentals and more easily secure a lease.
Getting a New Credit Card
If you’re applying for your first credit card, having a Good or Exceptional credit score will increase your chances of approval and help you get better terms, like a lower interest rate or a higher credit limit. While it’s common for your first card to have a lower limit and a higher rate, paying off your balance each month is a great way to improve your credit score over time.
Remember, falling behind on payments can hurt your score, so staying responsible with your credit will pay off in the long run.
You’ve Got a Bright Financial Future. Make the Most of It.
You’re now equipped with the tools to align your credit score with your financial goals. Small, positive steps, like maintaining on-time payments and reducing debt, will get you where you want to be. Building your credit takes time, but it will be well worth the effort in the years to come. Your future self will thank you!
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LORI WILSON
YOUR MONEY COACH
For over 18 years, I immersed myself in the world of financial services as an advisor, mastering a broad spectrum of areas from insurance (i.e., life, disability, long-term care, health) to investments and comprehensive financial planning. Today, I'm dedicated to helping my clients improve their financial literacy, as too many people are so unprepared — not just for retirement, but for managing their day-to-day finances. This has to change. The ever lurking problem is that money does bring up both anxiety and fear, not just because people lack capability or the ability to grasp or understand money, but because financial literacy was NEVER TAUGHT to them, either by their parents, society, in school or a combination of those three.
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As a MONEY COACH, LORI WILSON is dedicated to helping you improve your financial literacy, as too many people are so unprepared, not just for retirement, but for managing their day-to-day finances. Lori's mission is to provide the financial knowledge her clients need to make clear, confident, and informed decisions about money. When you're ready to start your journey to financial mastery, you can call upon Lori to help.
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