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Frequently asked financial questions are questions that I’ve seen pop up over and over again.  I thought I’d take the time to answer them in this new Series. So each post will have a short quick answer to these frequently asked financial questions followed by a longer more detailed answer.

How Important is My Credit Score?

Pretty damn important if you ever want to borrow money or open up a line of credit. If you’re already rich and can pay for everything in cash, your credit score may not be so important.

Short Answer:

Lenders use your credit score to determine if you are someone likely to repay money that you borrow. Basically, they use your credit score to determine your creditworthiness. If you have a low credit score you may not be able to get the line of credit you need, be it a car loan, mortgage, personal loan, or new credit card.

Your credit score ranges from 300-850. The higher your score, the better. Ideally, you want a score above 700 since your credit score can also determine the interest rates offered to you. The better the interest rate, the less you have to pay the bank for the privilege of borrowing the money.

Long Answer:

Almost everyone will at some point need to open a line of credit. It could be as simple as trying to get a specific credit card to travel hack and take advantage of bonus miles offered. Or a bigger decision like buying a car, home, or refinancing a loan, like private student loans.

How to Find Out & Read Your Credit Score

You can get the most commonly used credit score, the FICO score from several places. One of your current credit cards may offer you your free credit score. Alternatively, you can use sites like Credit Sesame or Credit Karma to get a free credit report card that shows your credit score and what areas you need to improve to raise your score. Your credit score looks at several things including, your credit utilization, types of credit, payment history, the average age of credit, and credit inquiries. Since some of these factors matter more than others, you can target what to work on to see your credit score drastically improve.

Related: How I Raised My Credit Score Over 100 Points

What is a Good Credit Score?

Ideally, you want a score above 700.Though 750 is even better and anything above 800 is rockstar credit score status. Anything lower than 650 will make life a little harder and more expensive. The higher your score, the better interest rate you will be offered on any line of credit. The lower the interest rate, the less money you pay to borrow the money.

If you already have an older loan or line of credit, you can also use your stellar credit score to shop around for a new loan with a better rate. You can refinance, or in the case of credit cards do a balance transfer to save on interest.

What Can I Do to Increase My Credit Score?

Credit utilization has a big impact on your credit score. It is the amount of your credit line you are using. For example, if you have a credit card with a limit of $10,000 and you have a balance of $9,000 then you have a 90% credit utilization.

The lower you can get your credit utilization the higher your credit score will be. Ideally, you want your credit utilization below 10% but at the very least below 30%.

There are two ways to decrease your credit utilization, the first is to lower your balance by paying off debt. The second is to increase the amount of credit available to you. You can do this by either opening another credit card (and not running up the balance) or getting a credit line increase on your current line of credit (credit card).

Keep in mind that opening a new card or extending the line of credit could also impact your number of credit inquiries and/or the average age of credit.

The other biggest thing you can do to help increase your credit score is to make sure you pay all your bills on time. Even if you were late with a payment a few years ago, making on-time payments now will make that one late payment matter less.

Wrapping it Up with a Bow on Top

Your credit score is important if you ever want to borrow money. Having a higher credit score (somewhere above 700) will meant lower interest rates offered on any loans you need. You can use tools like Credit Karma, Credit Sesame, or MyFico to find out your credit score.  If you have a lower credit score there are a few things you can do to help raise your score. To increase your credit score:

  • Lower your overall credit utilization by either paying down debt or requesting an increase in your credit line
  • Make all your bill payments on time

Read more from the Frequently Asked Financial Questions Series.

Money tools & resources i recommend

Chime (for saving) works by starting a spending account (takes 5 minutes) and opting into the automatic savings plan. (Learn more about getting started with Chime).  Every time I use the Chime Debit Card it rounds up my purchase to the nearest dollar and puts in in savings. Right now they also offer a double round-up bonus on those savings. All those withdrawals add up over time. Chime is free to use, with no monthly fees. With Chime, you end up saving money without having to think about it.

Qapital (for building savings & reaching money goals) Qapital can help you reach savings goals. Once you have the Qapital App installed and a bank account (or in my case three) connected you set up a goal or goals.  Then you set savings rules for each of your goals. For example, I have a round up to the nearest $2 rule, a guilty spending rule -when I buy Dominos. Qapital is free to useBonus, when you use my link you'll get $5 after your first savings.

Qoins (for debt repayment) When you sign up for Qoins, you connect your bank account and then spend as you normally would. Qoins will round up your purchases to the nearest dollar and put that change towards an extra debt payment. Learn more on How Qoins Can Help You Pay Off Debt Faster

SoFi (for refinancing) If you have private loans or your debt to income ratio allows, consider refinancing with a company like SoFi. Learn more about what it's like to refinance with Sofi. Refinancing my bar loan with SoFi ended up saving me over $1,000. Use my link to refinance your student loan and you'll get a $100 bonus.

Liz

Liz is a blogger helping people with personal finance and working for themselves. She shares her own journey to debt freedom and helps graduates dealing with above average student loan debt on her site, Less Debt More Wine. She currently resides in NC after calling Massachusetts home for nearly a decade.

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