Your credit score can come from a variety of sources, but more than 90 percent of the top 100 largest lenders use a credit score called the FICO® score, which was created by Fair Isaac Corporation. Your credit score provides a snapshot of how trustworthy they deem you to repay debts-the higher your score, the lower the risk of you not repaying them. A credit score shows how you have handled debts in the past, and lenders assume you will follow a similar pattern in the future-whether that’s been positive or negative. And the reason lenders feel confident enough to lend you that money is because of your “credit score,” a three-digit number that’s a measure of your overall financial health. What is a credit score?Ĭredit allows you to borrow money with the expectation you will pay it back. Having credit also offers convenience, such as when you use your credit card to buy lunch, knowing you intend to pay back the sum by the end of the month. So credit is handy for making big-ticket purchases-you can make a down payment of $5,000 for your car today and borrow the rest, then pay it back monthly (plus interest) over a certain period of time as determined by your lender. ![]() Very few people in the world can plunk down $40,000 for a car or…gasp…$250,000 for a home. ![]() Here’s what you need to know about credit and how it affects your financial life. When you put a purchase on your credit card, you are essentially borrowing the $30 for your new blouse, and your credit card issuer is expecting you will pay it back when the bill is due-or that you’ll pay them interest (and maybe penalties) for the privilege of extending your repayment period.īut credit is something you first have to earn. ![]() Most of us have heard how important it is to have “credit.” But what is credit in a financial sense, and how does it impact your life?Ĭredit, put simply, is when you receive money today, with the expectation that you will pay it back later.
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