Understanding the Importance of Your Credit Score
Learning about your credit score, understanding its significance, and knowing how to improve it can be crucial for financial stability and success.
Why is Your Credit Score Important?
A credit score is not just a number; it serves as a crucial gatekeeper to housing, wealth, and even career opportunities in the United States. However, historical biases embedded in the credit scoring system have obstructed many Americans, particularly those from minority communities, from building wealth.
According to research by the Urban Institute, credit scores play a significant role in perpetuating racial disparities in wealth and financial independence. The report states, “38 of the 60 cities have differences in median credit scores of 100 points or more between predominantly white and nonwhite areas. Nationally, the difference in median credit scores is nearly 80 points (697 vs. 621, respectively), which for a conventional mortgage, can cost families an additional $100 or more monthly and thousands of dollars over the life of the loan.” Moreover, predominantly nonwhite areas in more than 50 of 60 cities have below-prime median credit scores, with most being subprime.
Barriers to Building Good Credit
Factors preventing millions from building good credit often begin at a young age and can persist over a person’s lifetime. Data from the Consumer Financial Protection Bureau (CFPB) indicates that credit invisibility is a challenge faced by many, especially those lacking family support or financial literacy. For individuals growing up in families with limited disposable income or in areas with few financial institutions, obtaining a bank account or credit card can be challenging, if not impossible.
Steps to Building a Good Credit Score
To build or repair credit, financial analysts recommend demonstrating the ability to borrow and repay money from credit institutions promptly. Essential practices include using and paying off credit card debts on time, securing and repaying loans, and understanding the implications of your credit report and score. For a detailed guide on building your credit, visit Time.com.
