There comes a time in everyone’s life when the desire to be part of the American Dream snaps them back into reality. Bombarded with the desires of buying a car or a house, many do not realize that your determination to acquire these items is directly affected by your credit score.

What is a Credit Score?

Credit score refers to a number that represents a person’s past credit history and reflects an individual’s future credit risk. In other words, your credit score is a predictor of how likely you are to pay your bills back.

Generally, your credit score lies somewhere between 500 and 800 (although it can be lower or higher). To further elaborate, a score under 600 is regarded as a bad credit score while one above 700 is considered good. If you are under 500, you probably cannot receive any financial support—at least not without some killer interest rates. Everyone should aim for a credit score (at least!) above 700 but the higher, the better! The higher your score, the better chance you have for low interest rates, solid mortgages, and healthier loans.

Some people use multiple credit cards as an excuse for their low credit score. Regardless of the number of credit cards you have, being able to pay your bills on time – every time – reflects highly on you. It may not seem as potent now, but you are in a position to build on your credit score.

Finding Your Credit Score

Finding your credit score is based on different variables, summarized into five distinct categories:

• Payment history (35%): making payments on time
• Amounts owed (30%): balanced debt to credit ratio
• Length of Credit History (15%): the age of your account and how long you’ve had it
• New credit (10%): the recent credit acquisitions over a short period of time
• Types of credit used (10%): different kinds of credit impact credit score

There are several agencies that will determine your credit score for you. If you want a highly accurate and detailed credit score, be prepared to shell out a little cash. However, there are several free credit scoring options that are good alternatives if you are in a financial pinch.

The Importance of Your Credit Score

Your credit score sends the message out to lenders, or credit card issuers, that you are dependable and responsible. It is absolutely crucial that you pay off your credit on time. If you haven’t done so in the past, start now to improve your credit score and to give you better financial options in the future. Your consistency will help build your credit scores (which will lower interest rates for you), while simultaneously building and improving your financial portfolio.

Knowing your credit score is the first step becoming financially stable, which in turn will help you build up your credit in the future. Remember, you’re eligible to check your credit score once every 12 months, so be sure to monitor it closely. Don’t let a poor credit score prevent you from living the life you dreamed.