This past weekend, I took the time to tidy up my home by discarding a lot of unnecessary paperwork. In the midst of this, I stumbled upon a handwritten note at the back of my very first bank statement from Bank Of America. This note, titled “A Complete Guide to credit score,” held a great deal of significance for me.
You see, I moved to the U.S. from a country where credit scores don’t exist. Lenders in my home country, and possibly the government, primarily rely on forceful methods to recover their money. But that’s a story for another time, one that I’ll be touching upon in future blog posts. Today, I’d like to delve into the content of that handwritten note.
Truthfully, I can’t recall exactly which online resources I utilized in compiling this note. Its outline consisted of three points: understanding a credit score, why it’s crucial to have a positive credit score and how to boost your credit score. This note was written behind a three-page bank statement from August 2011, which stated my bank balance, and consequently my net worth, as $2600 during that period.
Fast forward six years, and a lot has radically shifted. My net worth has drastically multiplied from that modest starting point and my salary has almost tripled. Despite all these changes though, one thing that remained constant is the significance of credit scores.
Currently, I possess a credit score of 813 and previously published a post delineating my journey to achieving this score. I highly recommend you give it a read. In the process of enhancing my own score, I uncovered a few strategies for improvement.
I’ve decided to share with you the contents of that note, written back in 2005.
What is Credit Score?
A credit score is a numerical indicator of your creditworthiness; a higher score implies a sense of security to your lenders about your abilities to repay their loan. Three agencies, namely Trans Union, Experian, and Equifax are entrusted with maintaining credit scores.
Lenders generally refer to your credit score and credit report, provided by these agencies, when you apply for loans or credit cards. It’s important to note that there are two types of credit score inquiries: ‘soft’, which simply seeks to obtain information about you, and ‘hard’, which aims at offering you money or credit.
Furthermore, your credit score is susceptible to human errors since it’s formulated based on a credit report. Hence, it’s advisable to review your report for any discrepancies regularly.
Why is a high credit score better?
A superior credit score can lead to improved terms on credit cards, loans, and mortgages. As an individual with an impressive credit score infers responsible behavior, it can also affect your insurance premium rates, job offers, and chances of acquiring rented accommodation positively.
How to improve credit score?
A few strategies include prompt repayment of loans, availing of more credit, adhering strictly to your monthly bill payment schedule, capitalizing on 0% interest rate on loans, diversifying your credit options, and maintaining a balance between loans and credit cards.
Lastly, your credit score fluctuates based on how swiftly your creditors report your activities to scoring agencies. Despite the lack of access to the exact formula used in score calculation, consistently paying your dues and maintaining a clean credit report can significantly enhance your score.
Reflecting on my journey through the U.S. financial system, I realized that although I started with no credit score at all, my consistent efforts over the years have rewarded me with a score of 790. But I can’t help wondering, if my job wasn’t as great as it is now, how would that have impacted my credit score?