Credit score plays an important role in deciding the financial condition of every individual. Regular transactions, or the amount of monthly transactions are two of the many deciding factors for a good or bad credit score.
While discussing this, the first question that might go through your mind is – what is a credit score?
Credit score is a numerical entity that demonstrates the creditworthiness of an individual. Determined by agencies like FICO, credit scores are analyzed on the basis of the credit files of the said individual, and are represented by a three-digit number.
Having said that, you must be wondering about, when and why is a credit score important?
Credit scores are the deciding factor for lenders, through this they decide whether to trust you with their money or not.
A good credit score explains your credibility of repayment, whereas a bad credit score poses a negative impression on your financial condition. Hence, here are few instances to help you understand how important is a credit score.
A good credit report poses a positive impression about the individual. A person with good credit report is always charged lesser interest rates. Hence, maintaining a good credit score should be the primary goal.
Check Out Why Good or Bad Credit Scores Matter
A good credit score also determines the rate of interest which can be availed from the credit cards. The amount of debt which can be availed by individuals from credit cards is determined by the credit scores.
You might also want to adopt healthier credit habits as the amount of reward points as well as cash back offers are determined only by a good credit score.
If you have a good credit history, you might also be able to avail the 0% balance transfer offers. This allows the individual to transfer the existing credit card debt, to a brand new credit card issued, without any interest charged.
Home Loans and Mortgages
One of the main advantages of a good credit score is that it benefits in cases of loans and mortgages. A good credit score guarantees a lower rate of interest, compared to a bad one.
The credit score limits are determined by the concerned agencies like FICO, who analyze the credit score based on the financial transactions and the economic status of every individual.
The non-governmental banks issue car loans or home loans based on the limit set by the agency. The interest rate for repayment of loans differs according to banks as well as the credit scores of the individual.
It also determines the amount of loan which should be sanctioned to the individual. However, there are several additional factors as well like existing debts, income, age of retirement, etc.
Certain companies also check the credit report before granting any utilities. Apart from that, the merchants or companies selling off their products on the basis of monthly installments, pay extreme importance on the credibility of your credit score.
Mobile Phone Sales
The mobile phone operators and providers have mandatorily included a good credit score rating in fetching potential buyers.
As per their mobile estimates, the customer has to pass a minimum credit score in order to be eligible for certain mobile offer advertised.
However, approximately 50% of the people in United States have been reported to not qualify according to the credit score report and thus are not eligible for the offers listed.
Just like applying for home loans, many landlords often rely on your credit report while deciding whether to accept or reject your rental application.
The advantage of a good credit score in this case, is that, the landlord stays assured that you are capable of repaying the monthly installments and thus gives your application a higher chance of being accepted.
However, a bad credit score will pose a negative impression about your credit report and eventually lead the landlord to charge more down payment or exaggerated interest rate.
Insurance policies as well as monthly premiums are both decided on the basis of your credit history. Though there are several other factors which needs to be considered, the credit report usually takes an upper hand.
Whether you are fetching a car insurance or health insurance, or investing in long term policies, the rate of interest decided by the insurers is calculated on the basis of your credit karma.
If you have a good credit score, your interest rates tend to be lower than that resulting from a bad credit score.
Hence, you might want to save those extra bucks from being wasted and try to boost credit score towards saving more.
Approximately 47 percent of reputed companies depend on the credit report of the employee before hiring. This is because a good credit score gives the recruiters the credibility of your performance.
How to Raise Your Credit Score?
Now that you have understood the significance’s of bad credit score, you might want to raise your credit score in no time.
However, this cannot be achieved overnight. You need to adopt healthier credit habits and thereby gradually improve credit score. Some of the habits which you can take up to raise credit score are:
- Maintain a low credit utilization rate
- Repaying monthly bills on time
- Not swiping your credit cards frequently and unnecessarily
- Maintaining the accounts properly
- Not having too many accounts
Wrapping Up – Why Credit Scores Matter
With each passing day, the importance of credit score is constantly on the rise. It is being primarily considered by folks from most of the corporate sectors that involve financial transactions.
Maintaining a good credit score is a necessity as it will not only help you in cases of emergencies but also will help you save a huge chunk in the long run.
Hence, implement healthier credit habits from today and save your money from getting wasted in the high interest rates.