Your credit score is one of the most important numbers in your life because it can directly impact your purchasing power. If you are interested in trying to get financing for something, it will be difficult unless you have a solid credit history. Things like late payments, delinquent accounts and high balances on credit cards can strongly influence you ability to purchase the items you want.
Credit Score
Your credit score is a numerical calculation based on your past credit history. The credit score formula was developed by FICO and it is used by the major credit bureaus. Any activity that you engage in related to credit will usually be reported to these bureaus. The bureaus then calculate your score and anytime you try to obtain credit, the lenders can access your report and your credit score. This aids them in their decision to extend you credit.
Importance of Score
Anytime that you try to obtain financing, the lender will look at your credit score first. For example, when you try to buy a new car, the car dealer will pull up a copy of your credit report within minutes. If you try to get consumer financing at a store, the system will be able to access your credit score and make a decision within seconds. Mortgage lenders also look at your score to determine if they want to help you buy a home.
Credit Limits
Your credit score has an impact on how much you are able to buy with credit. The higher your score is the more likely creditors are to provide you with high credit limits. When evaluating your applications for credit, the lender will look at how much debt you already have in relation to how much open credit you have. If you have a high debt ratio, the lender will be less likely to loan you the amount of money you want.
Payments
When you try to get a loan for something, the monthly payment will be largely affected by the interest rate that you get from the lender. The interest rate that the lender offers you will be based specifically on your credit history. If you have a good credit history, you can get a lower rate. This will have a large effect on the size of your payment. Since you only have a limited amount of money every month for payments, your credit score has a direct affect on how much you can afford to buy with credit.
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