What is financial literacy:
Financial literacy is a concept or skill to learn in today’s world. Moreover, financial literacy helps you to improve your financial intelligence. Financial literacy is nothing but a set of skills that makes you achieve your financial goals. With financial knowledge, you learn to control your money by yourself. Financial literacy is an ability that gives you the proper understanding alone with the use of different financial skills. That includes –
- Making all kind of financial decision
In simple words, financial literacy is the skill to manage money.
Why is financial literacy important:
According to research, 92 to 95 percent of businesses failed due to one reason that is financial mismanagement. Lack of financial literacy leads to financial illiteracy. In most cases, people earn money but have no idea how to save it or when and where to spend it. Financial illiteracy can affect you in many ways. Such as –
- It may lead you to poor financial choices. The results bring you negative consequences.
- Predatory lending, subprime mortgages, or fraud, and high interest rates are the outcomes of financial illiteracy. Eventually, this ends up with poor credit and bankruptcy.
Therefore, it has become a necessity for everyone to have the skill of financial literacy.
How financial literacy can help you with your credit score:
A credit score is a numerical value that tells you about your creditworthiness. When you apply for any loan, the lender checks your credit loan. The leader looks over whether your credit score is high or low. As a result of your credit score, you are allowed a loan. Hence, it is important to maintain a good credit score.
How would you maintain a good credit score? Well for that, you need to have the awareness of your financial duties. One can keep a good credit score by paying the loan in time and use their credit card in the right way. Meanwhile, without having a proper understanding of finance we can not do so. This is why the concept of financial literacy is necessary. Financial literacy makes you aware of your duties regarding your credit score or your debt.
Know how financial literacy helps to provide a good credit score:
- You must be financially aware of your wants. For instance, if you spend more money than your budget is, that affects your credit score.
- One of the ways to maintain a good credit score is by paying your installment on time. However, you need to keep track of your due dates to pay in time. Being financially aware helps you keep track of your loans.
- Your credit card includes a few risk factors. While evaluating your creditworthiness, those risk factors are considered by the leader. So you have to be aware of those risk factors to improve your credit score. Meanwhile, that is possible with the proper financial knowledge.
To summarize, financial literacy is the ability to make one think of the right financial decisions. While making money, most of the time we are not aware of much financial knowledge. As a result, it leads us to make poor financial decisions. Financial literacy gives the ability to make sound financial choices so that one can grow and manage money. Moreover, we are all aware that it is necessary to maintain a good credit score. Meanwhile, it is not possible to manage your credit score without being financially literate. Not having fair knowledge about your credit score can lead you to have a bad score. As long as you are financially aware, managing your credit score is not a big deal.