The vast majority of the American population don’t have an idea on how to control their personal finances and their personal debt. Although, many people claim that they can control their finances, their actions show the total opposite. The reason why most people find themselves in debt is because they spend more money than they earn. For example, a person buys a car or a house that he cannot afford, or maxing out his credit card on buying expensive things. However, many people still do this because they think they are able to afford it due to the fact they earn six figure income. Also, this is due to lack of financial education, which is also includes basic math calculations.
Many people don’t know how compound interest works or the concept of investing. This is also why lottery winners go broke in 4 years after winning millions of dollars in a lottery ticket. Why do lottery winners go broke after winning millions of dollars? Because first of all, they get into an emotional state, they buy luxury cars and homes, they spend on useless things instead of investing it and saving it. They go into a phase of financial travesty until all the money runs out. The result at the end is being broke financially, heavily in debt, and with a horrible credit score that would take years to recover.
Good credit vs. Bad credit
This leads to another point of bad credit score and good credit score. Credit score is an effective way to measure a person’s financial behavior. People that have bad credit score usually have one or multiple late payments from multiple accounts, almost all of it credit line is maxed out, and not reliable person financially. People with bad credit loans are deemed to be a risk in the eyes of banks and financial institutions. People that have an outstanding credit score usually pay on time, they get unsecured personal loans fast approval, don’t maximize their credit line, have a long credit history, and no delinquency records at all.
These people are offered low interest rates, outstanding credit offers (with high credit lines), and making big purchases possible (buying a house or business). All financial institutions, banks, and loan officers look at a person credit score to determine a final decision to approve or decline a loan request. So whether you are buying a car, house, or requesting a bank loan, your credit score will be a majority factor of being approved or declined.