Credit scores are simply numbers indicating a person’s creditworthiness after his credit files were analyzed. Think of it as a student’s final grade in school. All his test papers, assignments, quizzes, reports, and attendance factor in the making of his final grade. In a way, credit scores are also derived from various financial transactions such as the payment of bank and car loans, the deals of the house on mortgage, the payment of credit card bills, and other loans such as educational and emergency loans. People who pay their bills on time or in advance receive good credit scores. On the other hand, when people are delinquent in paying their financial obligations, low credit scores will be given to them.

There is a perfectly reasonable rationale behind making sure that bills are paid on time. Unlike schools grades, credit scores are more than just numbers-it has a bearing on people’s future financial dealings so they have to be careful with it. Bad credit scores will inform future lenders that that particular person is a delinquent payer or that he/she is incapable of paying back loans. This reputation is not good since the lending industry is a business, and it needs to get its money back to be able to make more money out of it. Thus, the most probable result of having low credit scores is that people will be denied of their loan applications until they get a more acceptable credit score in the future.

Then again, even if this person simply waits for credit scores to get better, he can’t actually get a higher score without adding an entry to his loan history. Say, if he has 420 as his credit score (a very low score in the FICO score range), not borrowing any money from any institution will not make the score go up to 520. People have to incur good credit in order to change their credit score. And this is very difficult to do especially if the person cannot get a loan or is being given a very high interest rate (another consequence of having bad credit scores). The higher interest rates that which are given to people with low credit scores is for the purpose of assuring the lenders that they will get their money back even if the borrower defaults on his payments.

So the best way to have healthy financial accounts is to keep them good from the get go. Bad credit scores only appear if you let them. If you forget due dates and deadlines often, remind yourself by putting it in your planner or mobile phone reminders. Being a day late in paying bills may not be as bad as a 30-day delay in payment, but still you are late in paying. Be sure that your salary is enough to pay for your bills and your daily necessities. Do not spend more than what you earn because this will eventually lead to financial difficulties in the future. Stay debt free, keep your credit scores high, and you will surely live a better life than your counterparts with bad credit scores.

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Category: Finances
Keywords: credit scores,bad credit scores,credit score