Credit: What it is and Why it's important

I’ve been racking my brain for some practical things I can post for you guys and finance came to mind. No matter what stage in life you're at, it certainly helps to amp up your finances. Lately, I've been delving even deeper into financial literacy (a lot), and I figured y’all would be into a little series about credit. A series made sense because it allow me to really get down to the meat and potatoes of this (I’m writing this one Thanksgiving Day so pardon all the food references). Now, without further ado, I’m gonna get right into it.

What is this credit thing anyway?

Credit is basically in reference to your credit score, which is a very important number in your life. Credit scores range from 300-850. This is the number that determines if you have good credit or bad credit. This number, influences a lot of things financially, namely a lenders willingness to lend to you. You can access your credit score through a number of platforms. A few common ones include Equifax and Transunion, both of which are available for free, using credit Karma (which I highly suggest you download). Your credit score usually goes back seven years or so, and has information on how much you owe, to whom and whether you are usually late or on time.

Okay….but why should I care about credit?

Now that you know what this magical number is all about, you’re probably wondering why this is important to you. Well, for starters, having credit helps you get the things you need, when you need them. Having good credit shows lenders (credit card companies, student loan servicers, landlords etc) that you have a good track record and that they can trust you with their money. When you build your credit up, lenders are more likely to lend to you, and at a lower interest rate. This means, that you have more spending power. I mentioned landlords in the list, because some landlords require a credit check, in order to determine the likelihood of you paying them on time.

Having a lower interest on your loans and or credit cards, is one of the other perks of having good credit. This perk helps you to keep your money, instead of giving it to lenders. In other words, the higher your interest rates, the more money you’re giving away. Having bad credit, limits your options when it comes to borrowing, and the few lenders that are willing to lend to you, will do so at a higher interest rate. Now, do you just walk around throwing money on the ground? I hope not, BUT, if you do, send some my way. Nah, but for real, having bad credit is not the end of the world. Starting a good financial regime, depending on your unique financial needs can definitely remedy this issue after a while.

Now that this whole credit thing is no longer a mystery, tune in to my next post on how to build/improve your credit score.

BUT, before you leave, I want you to take out your phone and download Credit Karma, and also check out this blog post by Greatlakes that provides some great tips on building credit. I know it’s a little scary to find out where you stand with your credit, but its better to know what you're working with so you know how to work on it.