The way that a lot of people talk about it, you might think that credit is the single most important aspect of your finances. That you need to protect it, strengthen it and always keep a keen eye on it. How much truth is there to that? Why does credit matter? Who can see it? What other options do you have? These are important questions that we’re going to look into now.
What you use it for
The first thing to nail down is how exactly most of us use our credit. For those who don’t know, your credit score is effectively a measurement of your reliability when it comes to dealing with creditors. So it’s going to be used primarily for approaching new creditors and getting loans. It can affect your ability to buy a house or a car. It can also make banks more or less likely to provide you with an overdraft.
What helps it
So, how do you make sure that your credit is strong? Well, the first thing you need to do is get a look at it. That way, you can see if there are any bad marks on your score that are simply inaccurate. These happen more often than you might think and can be corrected with a simple inquiry. Otherwise, you improve it by paying loans on time, using credit cards responsibly and getting rid of debt.
What hurts it
Naturally, the things that are harmful to your credit are the opposite of the points above. Being late with loans and accruing debt are going to be the most common complaints. However, one you may not expect is paying off loans too quickly. This is, in a different way, neglecting your deal with your creditors. Reliability is the key, not expediency.
Who sees it
Now this is where credit can have effects that are further reaching than you might expect. Naturally, creditors are going to see your score. But so are people like landlords. They have just as much right to see how you’re able to cope with payments. Even prospective employers might be privy to look at your credit history. So it’s not just about taking loans. It has far-reaching effects on your reputation.
But that’s not to say that credit is the only thing you can rely on. It’s a score, affected by numbers and algorithms. If you have physical assets to back yourself up, that can be just as good a replacement. For example, using your home for secured personal loans. Even if your credit score is terrible, you might still have other options waiting for you.
In conclusion, it is clear that credit is important. You should look after it if you can and avoid damaging it. Not just for financial purposes but for the ripple effects if can have on your future. In terms of getting a loan, however, it’s clearly not the be-all and end-all. You are rarely out of options. It can even be a wiser step to declare bankruptcy and take a huge hit to your credit than to live and struggle with insurmountable debt.