hink of your credit scores as your academic scores. Like how academic scores represent your academic performance in your school or college, credit scores represent your financial performance and how well you manage your finances.
Your three-digit credit score defines your financial life and future. It gives you a financial identity and plays a significant role in your financial transactions.
Good credit scores can be the key element in determining whether you get a mortgage, vehicle, or school loan.
On the other hand, bad credit scores will make it harder to obtain a credit card and make borrowing money expensive due to high-interest rates. Even if you aren't looking for a loan, having good credit can help you.
Credit scores are used as a litmus test by landlords, insurance, and employers to determine whether the persons they are dealing with are trustworthy and financially responsible.
Thus, a good credit score always gives you the best financial options and opportunities. In contrast, bad credit can harm your financial identity and rob you of any financial opportunities and offers.
Therefore, getting a good credit score is vital to have a promising financial future.
What Is A Good Credit Score?
Credit scores are a risk measuring mechanism for lenders. Higher the score, the lower the financial risk you possess to them.
Good credit scores are high credit scores that assure lenders that you have good credit history and have the financial ability to pay back loans in time.
Different lenders adopt different credit score ranges, and good credit scores differ accordingly. However, a credit score above 700 is generally considered good.
Good credit scores build the creditworthiness and financial reliability amongst the lenders and thus, give you economic privileges compared to someone with a low credit score.
Benefits Of Having Good Credit Scores
Apart from financial privileges, a good credit score significantly impacts many aspects of your life. Let's take a closer look at the benefits of having good credit scores:
High Chance Of Credit Approvals
A good credit score enhances your chances of getting the loan approved. While having good credit doesn't guarantee loan approval, it is one of the significant components lenders consider during loan approval.
A good credit score means that you have been using your finance well, and the bank can trust you for the loan. It assures the bank that you will pay back the loan in time, and thus, you have a high chance of getting the loan approved.
Lower Interest Rates
One of the significant benefits of having good credit is getting lower interest rates on your loans. When you apply for a loan, such as a mortgage or a credit card, your credit score is often used to calculate your interest rate.
Applicants with good credit scores often obtain the lowest interest rates, whereas applicants with lower credit scores typically receive higher interest rates.
According to Experian, the average interest rate for the credit score 781 to 850 is 6.59%, whereas that of credit score 300 to 499 is 15.30 %. Thus, having a good credit score means you are saving the interest amount.
More Bargaining Power
A good credit score provides bargaining power when negotiating an interest rate on a credit card or a new loan.
Applicants with good credit scores have several options and receive offers from various lenders. Thus, you can take advantage of other favorable offers that you've gotten from different lenders.
However, if you have a poor credit score, creditors are unlikely to compromise on loan conditions, and you will have no alternative credit offers or options.
Higher Credit Limits
Your income and credit score determine your borrowing power. One advantage of having a solid credit score is that banks let you increase your credit limit since you've proved to repay what you borrow on time.
Thus, if you have a good credit score, there is no restriction in increasing your credit limits. But, if you have a bad credit score, banks may further impose restrictions on your credit limit.
Easy Approval For Rental Apartments
Credit scores are increasingly being used as part of the tenant screening process by landlords. Landlords need assurance that the tenants will make timely rent payments.
So, they set certain credit scores that the tenants should meet to rent the apartment. Thus, if you have good credit scores, you will likely get easy approval to rent apartments.
On the other hand, a low credit score, especially if it is the result of a recent eviction or an unpaid rental bill, might severely impact your possibility of getting into an apartment.
Lower Insurance Rates
Insurance companies use your credit report and credit history information to determine your insurance risk score.
Thus, poor credit scores are typically charged with higher insurance rates. You'll pay less for insurance if you have a good credit score than a bad one.
Eligibility For Certain Jobs
Usually, jobs do not require a credit check, but some financial jobs which require money handling would need a personal credit check.
This is to ensure that you are financially capable or not subject to bribery due to financial difficulties. Thus, specific jobs may be ineligible if you have a low credit score.
High Chance Of Business Loan Approval
Personal credit scores are essential for getting a business loan as well. If you have a bad credit score, the chances are that your business loan will get rejected. This is why people choose to invest with people with good credit scores. Bad credit scores may impact your business investments.
Avoid Security Deposits
A security deposit is an amount of money held in the trust to protect the owner from the default of another party.
People with good credit scores may even have the privileges of skipping such security deposits as your credit score defines your creditworthiness.
On the other hand, if you have a low credit score, you might even require more money as a security deposit since the owner may not trust you.
Better Installment Plans
Many retailers will check your credit score before approving your installment payment plan application. After all, they need to know you're going to pay them before they allow you to take their products home.
Depending on the shop and their current promotions, a strong credit score may qualify you for low-interest or interest-free payment plans.
Having bad credit doesn't mean you can't shop at these businesses; it means you'll have to pay in full when you make your purchases rather than taking advantage of installment plans.
Thus, the credit score reflects your overall financial health and creditworthiness. While a low credit score might make your most significant financial transactions more expensive, a high credit score can provide you with a competitive advantage in lending choices.
Because your credit is such a crucial part of your financial identity, it's essential to start building good credit as soon as possible.
Even if you have low credit scores, you can boost your credit score and enjoy all these perks of having a good credit score.