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Discovering the Power of Credit: A Guide to Financial Success
Published on March 2, 2024
Valley Bank
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Credit scores are like a three-digit report card that tells financial institutions how reliably you handle your financial responsibilities. According to a study by FICO, one in five Gen Zers reported having only a little understanding or none at all about credit scores. Furthermore, 29 indicated they lack knowledge of whether they have established credit.
However, grasping the concept of your credit score and striving for a higher rating is crucial because many businesses consider these numbers to evaluate potential financial risks.
A good credit score indicates that you're seen as less risky by lers. This can unlock several benefits such as:
Lower interest rates on loans and credit cards
Better insurance premiums
Approval for rental properties with possible lower security deposits
Credit, at its core, represents the privilege of making purchases now or borrowing money today, agreeing to repay it in the future along with interest and fees.
Establishing a history of credit usage is essential as financial institutions often require evidence that you can handle credit responsibly before offering you credit.
Thankfully, there are ways to start building your credit without needing an extensive credit check. For instance, becoming an authorized user on someone else's credit card-preferably held by a responsible party who always pays their bills promptly-is one strategy.
Another option is opening a secured credit card through a bank. This type of card requires you to make a deposit that serves as collateral for any charges made with the card.
A third approach could be taking out a credit builder loan, which offers low-risk opportunities to demonstrate your ability to make timely payments.
The Calculation and Interpretation of Credit Scores
Credit scores are calculated by companies providing financial services who share your payment history and debt information with one or more credit bureaus like Equifax, Experian, and TransUnion.
Scores typically range from 300-850 on a standardized scale. According to Experian, a good score is generally above 700 and an excellent score surpasses 800. Most consumers have scores within the 600 to 750 range.
Understanding credit scores can be confusing at times. You can find more insights into this topic in our Learning Center.
does not provide professional tax, legal, accounting or financial advice. We encourage consulting your personal professionals for guidance before making any financial decisions.
Key Takeaways:
Credit is crucial for securing favorable rates and benefits from financial institutions.
Establishing credit helps demonstrate reliability to lers.
Scores range from 300-850 on a standardized scale with different ratings representing varying levels of risk assessment.
Our Learning Center offers further information about credit scores and their implications.
For more resources or assistance, visit our Personal Banking page. Connect with us through the website for additional insights into financial planning, banking services, and career opportunities at Valley National Bank.
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