The Finance World Magazine| Edition: April 2023

Personal Finance
Understand Your Credit Score and Why
It Matters
Credit score is a numerical representation of an individual’s creditworthiness
based on their credit history. It is a crucial factor that lenders and financial
institutions consider when deciding to approve or deny credit applications. A high
credit score indicates a good credit history and responsible financial behaviour,
making it easier to obtain credit with favourable terms and lower interest rates.
Conversely, a low credit score can lead to difficulty in obtaining credit or result
in higher interest rates and less favourable terms. Continue reading if you want
to know more about your credit score and why it matters.
Lenders rely on a credit score,
which is a number consisting
of three digits, to assess the
level of risk involved in lending
money to a borrower. Different types of
lenders, such as credit card issuers, car
dealerships, and mortgage lenders, use
this score to determine the amount they
can lend and the interest rate they will
charge. Additionally, insurance companies
and landlords may also consider your
credit score to evaluate your financial
responsibility before providing insurance
coverage or renting out an apartment.
What is credit?
Credit provides the option to borrow
money for necessary or desired purchases
and pay for them later or in instalments.
Examples of credit include personal
loans, mortgages, car loans, and credit
cards. Among these, credit cards are
the simplest form of credit, providing a
predetermined credit limit that can be
used to make purchases. When utilized
responsibly, credit enables individuals
to make significant purchases, such as
buying a car, that they may not have been
able to afford upfront.
However, using credit recklessly can
result in accumulating excessive debt,
increased debt payments, higher interest
rates, and a diminished credit score,
which can hinder one’s ability to obtain
credit. Moreover, it can have a detrimental
impact on one’s overall finances and lead
to stress. It is, therefore, crucial to use
credit only for purchases that can be
paid off in a timely manner.
Consolidate your debts?
Having good credit could increase your
chances of obtaining lower interest rates
8 www.thefinanceworld.com April 2023