A good credit score is very important. The credit score enables lenders to know how much credit they should give to the borrower. At the same time, one can manage effectively one’s financial resources with a good credit score. It allows one to maximize one’s financial resources because with a good score one can have lower interest rates on loans, insurance and other purchases. Many however are confused about how credit score works so here are three facts about credit score that one should know.

First, credit score is all about creditworthiness. This means that other things, such as income, how much cash one has, one’s investments, assets and others, do not affect one’s credit score. This also means that if one uses cash then he will not have a very good credit score as compared to those who regularly use credit cards. What this shows is that managing one’s loans and credits is the best way to have a very good credit score.

Second, is that credit scores can be improved. The most important thing one should know about credit score is that one can improve one’s score regardless of what one’s financial history shows. In other words, one can actually improve it even if one has gone through bankruptcy or other financial disasters. To do this, one should start by getting one’s credit score and credit report. Evaluate the report and see if there are errors. Then one should start paying dues on time and start paying other debts. It is also important not to close one’s credit cards and of course not to max them out. In time this will improve the score.

Third, credit score can affect other aspects of one’s life, not just credit. Although lenders use the credit scores in determining how much they should lend the borrower or consumer, for the individual, it is more than just being able to qualify for these loans and purchases. Credit scores can actually affect other aspects of one’s life. For example, employers generally use the credit scores of their applicants and use it to determine how responsible the applicant is and whether he has committed any financial frauds. Employers that generally do this are the financial institutions, government agencies and other companies that handle sensitive materials and resources, such as chemical companies. Applicants should therefore carefully read every document their prospective employer wants them to sign, as allowing them to review one’s credit history is usually included in these documents.