In this video, Marco from Whiteboard Finance explains why your credit score is so important. He likens it to a financial report card and explains how it's used by lenders, insurance companies, landlords, and even potential employers to assess risk.
Lenders use credit scores to determine whether to approve a loan and what interest rate to offer. Insurance companies use them to set insurance rates. Landlords consider them when deciding whether to rent out property. And some employers request credit scores as part of their hiring process.
Marco provides a real-world example of how a lower credit score can increase the cost of a mortgage over 30 years. He uses FICO data to show that lower credit scores result in higher interest rates. Then he presents a table showing average interest rates by credit level for a $300,000 30-year fixed rate mortgage. By comparing the difference in total interest paid over 30 years between two different interest rates based on the borrower's credit score, he emphasizes the significant financial impact of having a lower credit score over time.
He also explains how actions such as using and paying off credit cards, making or missing student loan payments, paying other debts like medical bills and utilities on time, and avoiding bank overdrafts and collections can affect your credit score.
Credit scores are tracked by three major credit bureaus: Experian, Equifax, and TransUnion. These bureaus keep track of individuals' credit history for at least seven years, after which negative marks may be removed from the report. Credit reports are used to calculate an individual's credit score.
Marco shares his personal experience with building good credit by being added as a cosigner on a parent's account at an early age. His mother made him a cosigner on her credit card when he was five years old, contributing to his lifelong high credit score. He advises viewers to use and pay off monthly bills responsibly if they want to build good long-term credit but warns against getting a credit card if they cannot handle the debt responsibly.
Most financial obligations are tied to an individual's social security number and can impact their credit score if not managed properly.
The video concludes with Marco's final thoughts on the importance of maintaining a good credit score for various aspects of life and financial opportunities. He shares personal benefits from using responsible spending habits with travel rewards from using his own personal experiences as examples.
He also promotes Whiteboard Finance University courses with discount code "credit20" offered at the end.