Why do we need credit scores anyway?
A friend of ours recently told us, when she was growing up, her father taught her that "credit is a poor man's wealth". And my wife's grandmother told her "baby, always pay your bills on time so you'll be able to get whatever you need". You may remember someone telling you similar things about credit.
You soon realized that with good credit, you could buy pretty much whatever you wanted without having to wait.
Well, businesses quickly realized that you would buy more and pay more if you could buy now and pay later. So they began to focus on ways to help you to do so. The quicker and easier it was to get you credit the more money they could make. Get it?
A computerized scoring system, was soon developed by Fair Isaac Corporation (FICO) as a quick and easy way to get you approved.
Computers did all the work. All creditors had to do was check your scores and if your score exceeded the pre-set number you were approved!
You've seen how it works: if your creditor decided to approve anyone with scores over 640, to buy a car, and your credit scores were over 640 you got approved; if not, it was declined. Quick and easy...
I didn't know they use my Credit Scores for that...
Once the mortgage industry got it cleared with the Government underwriters (i.e. Fannie Mae), other types of credit scores were developed.
Eventually, businesses even started using your scores for decisions that had nothing to do with your credit.
For example, whether you know it or not, your scores are now being used to determine premiums for auto insurance, home owner's insurance, and life insurance.
And believe it or not, most employers will now do a credit check when you apply for a job! What's next? Well, how about health insurance premiums or employment benefits?
By now you may feel like your total financial life boils down to your credit scores. Well, in many ways it does! So, it's pretty important to know how to improve your scores.