Do you have good credit? Does it matter?

Have you ever worried about your credit score, and what is your credit score actually?

March is National Credit Education Month so now is an appropriate time for a conversation about what your credit score is, why it might matter for you, and how to take control of this area of your life back from financial companies.

Dictionary.com defines credit as “reputation of solvency and honesty, entitling a person or business to be trusted in buying or borrowing.” 

Your credit rating is expressed as a credit score, a number usually ranging from the 300s to the 800s, where a score over 800 is considered to be the goal.

The biggest reason credit impacts people’s lives is that it impacts whether you can borrow money and at what rate. People with higher scores can typically borrow more money and at better rates, while people with low scores might have trouble qualifying for a loan at all.

It’s important we discuss who calculates these scores and whether they’re actually accurate. Your credit ranking is calculated by a company called a credit bureau. In the US, we have three main credit bureaus you may have heard of: Equifax, Experian and TransUnion. 

While the majority of people don’t have errors on their credit reports, errors are still surprisingly common and can negatively affect your credit. 1 in 4 participants reported significant credit report errors in a 2013 study by the Federal Trade Commission (FTC). Even worse for some people, research suggests stress related to credit can even impact your mental and physical health.

It doesn’t have to be this way however. Let’s look at some ways you can take control of your relationship to credit:

1. Follow your credit report and dispute incorrect information. According to the FTC credit study, 4 out of 5 people who made a dispute received some type of modification on their report. AnnualCreditReport.com is one resource recommended by the FTC that you can use to check your credit on a yearly basis.
2. Pay cash. While it’s easier said than done, the best relationship one should have with debt is simply to not get into debt and spend less money than you make. Freedom from debt will ultimately produce peace and freedom in your life in a way that no material thing you can buy can do.
3. Be your own bank. There are strategies where you can use insurance to grow your assets and protect yourself from market turbulence and instability in the banking system. Typically, you set aside a little money every month and in return you have access to a benefit for your family if anything should happen as well as a nest egg for a major expense like sending a child to college.

All in all, yes, your credit score matters, but there are ways to take control of the situation. Simply paying your bills on time and not carrying a balance will themselves have a big positive impact on your score. But even better, why not explore how you can achieve financial independence and not need to worry about borrowing money in the first place?