08/19/2020
'Your credit score is probably the most important number in your financial life' — here's how it works
Your credit score is a three-digit number lenders use to assess your creditworthiness, or how likely you are to be able to pay back a loan. It can determine, in part, what kind of car you buy or what kind of mortgage you get on a home — and how much you'll pay to finance those purchases.
"A good credit score can save you a ton of money in the long run," Ted Rossman, an analyst at Bankrate, told Grow earlier this year. "Besides your net worth, your credit score is probably the most important number in your financial life, and your credit score has a major effect on your net worth."
Credit scores range from an "exceptional" score of 850, to a "poor" score of 300. FICO says the average American has a score of 704, which is considered "good."
Although it's important to maintain good credit, there's no need to aim for a perfect score of 850. "Very good" credit, or a FICO score in the range of 740-799, can be good enough to qualify for the best rates on a mortgage, for instance.
Why your credit score matters
Lenders will look at your score if you request a loan, including a mortgage, car, or private student loan. They use it to decide if they're willing to extend you a loan or line of credit, and to determine your interest rates.
The better your score, the more likely you are to be eligible for the best rate.
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