Thrifty Thinking: Why Credit Scores are Like Grades

This article originally appeared on TrueCredit 

Think back to a time when your performance was measured in letter grades. Basically, having a great credit score is equivalent to being an A student.

Or, for people at the other end of the spectrum, having a low credit score is much like being a C or D student. If you just think about your credit score in terms of the letter grade system, the comparisons are easy.

And, the reality is that your parents or teachers were somewhat right — your grades can determine your future, like the fact that high school grades were a large factor in where you could go to college. Well, just like that, your credit score influences the types of loans you can get, as well as the types of interest rates you'll pay.

But it's important to understand that your credit score (unlike your grades) does not necessarily "go down in your permanent record." Nope, the credit scoring system is much more forgiving! Your credit score is always changing, and you definitely have control over how it will be in the future.

You can't go back and retake Calculus junior year, can you? But let's say your credit score is not exactly perfect — a few late payments on cards, or loans — it doesn't mean lenders will blacklist you for life. If you get your financial house in order, which is often as simple as starting to make regular on-time payments on your credit cards and loans, then over time your score may rebound. While your school transcript will always show that C+ in AP History, your credit score only shows your current creditworthiness. It lets lenders evaluate how much of a risk you are, as well the type of interest rates you'll get, whether for credit cards, a car loan, a personal loan or mortgage.

Read more at True Credit