Key Takeaways
- There are three “kings of credit” and they’re the credit reporting agencies.
- If you have a good credit score, you will benefit from lower interest rates.
- You’ll also have access to more lines of credit if you have a good score.
Are you familiar with the three kings of credit? They’re not big banks, they’re the credit reporting agencies: Transunion, Experian, and Equifax. These agencies assign a credit score to you, with a score over 720 generally being considered a good credit score. If you have a good score, you can access lines of credit. Additionally, the higher your score, the lower the interest rate you’ll be eligible to receive.
What’s a line of credit? The simplest form of this would be a credit card. You apply for a credit card, it is backed by a bank, they consult your credit score, and they decide what your limit is. If that limit is, say, $5,000, you can draw up to $5,000 on that credit card. You probably don’t want to keep a balance on the card, though. You’ll want to pay it off each month, otherwise the bank will charge anywhere from 12% to 21% each month on that money. But having a credit card does make life easier when you want to do things like purchase things online.
What other lines of credit are there? Well, there are home equity lines of credit. If you have a home with a mortgage on it, you can apply with a bank to get a credit line on your home. There are many reasons for doing this, but people often do it to remodel their homes, for instance. As long as the line of credit doesn’t go above 80% of loan to value, your bank will likely issue this line of credit. In other words, if your home is valued at $200,000, then 80% of loan to value would be $160,000, meaning that your mortgage plus your home equity line of credit combined can’t go above $160,000.
Finally, for those of you who own businesses, you can get lines of credit from the bank, and they work very similarly. They’ll examine your business, your credit score, and determine what line of credit they’ll approve for your business to purchase goods, services, and other business necessities.
There are more areas than these, but these are the three primary areas you may encounter if you’re trying to understand what lines of credit are. Just remember that you’ve got to be in favor with the three kings to get that good credit score! Until next time, enjoy.
Gary
If you’d like to read more on this topic, here are a few of Gary’s previous posts that you might enjoy:
Getting Your Credit Score Over 740
