Your Credit Score Has Nothing to Do with Financial Literacy
Episode 5: Your Credit Score Has Nothing to Do with Financial Literacy
Pete and Alex dedicate this week's topic to the credit obsession, and they acknowledge that the true definition of credit and credit scores has nothing to do with financial knowledge
In the 5 episodes MoneySmarts U has seen, you have to wonder why we dedicated 2 of them (and would welcome more) to just talking about credit. Much of the reason we do this is because society as a whole is obsessed with this idea of credit: Building credit and having good credit is all the rage. At the end of the day, what happens is that students like you and other people who just getting into the credit game end up even more confused than is probably even necessary at this point.
As Pete says, your credit score has nothing to do with your level of financial literacy. It has to do with how well – or rather, how often – you navigate the borrowing world. And what does it get you? Well, on the one hand, better credit gets you better interest rates when you do need to borrow money to buy a home, insure your car, or even get more credit cards. But really, it affords you the ability to get into more debt, just at a better rate.
On the other hand, there’s the issue of whether or not you even need it. Unfortunately, the misinformation that’s out there only feeds into the cycle that has become the societal credit obsession. Without proper understanding of the actual definition of credit or insight into how to establish and build the credit you may think you need, you’re stuck in the perpetual roundabout – likely getting bad information from places like commercials and sales people who only want you to use their services. Then, you think you need to have more or better credit (which could put you in a lot of debt very quickly) without even understanding why.
Biggest takeaway: If you have student loans, you’ve already stepped your toes into establishing your credit. Additionally, any credit cards or bills you have in your name can only help to boost or wreck your credit report and score, depending on how wise you are about using them. Check out Pete and Alex’s advice to learn more about establishing, building, and maintaining your credit. Because let’s face it: You know you want to know.