In recent times, more people are eager to increase their credit scores. While it is a good thing, some only improve their credit scores to the bare minimum. If you are one of such persons, then this article is for you.
A good credit score will benefit you in so many ways than you expect. And of course, the perfect credit score will bring a lot more pros to the table. But what are they? Read on to know the big advantages of a good credit score.
What Is a Credit Score?
Before you know why you need a good credit score, you need to understand what a credit score is. A credit score is a number that shows the result of your credit history. Your credit history is a detailed report that documents how you manage finances. For example, credit history shows debt information, loan repayments, credit lines, etc.
The debt you owe tells a lot about your credit score. Having a stable credit history means you have managed your debts well, hence, a high credit score. But unstable credit history means you are irresponsible with loan repayments. Unstable credit history makes your score low, putting financial limits on you.
Poor credit scores are easy to get but are not cheap to live by. In contrast, good credit scores make living easier.
Advantages of a Good Credit Score
1. Gets You The Best Insurance Rates
Insurance companies use credit reports to qualify an individual for insurance. Auto insurance carries out this practice. Before you get car insurance, the insurance company uses your score to know the risks and how much to charge you. The risk evaluation determines the insurance coverage you get.
Some insurance companies also run assessments based on credit scores. The company judges your risk ratio for this process by checking how you handle finances. Sometimes, people with low credit scores attract higher premium fees.
2. You Get the Least Lending Interest Rates Possible
Lenders determine your deserved interest rates from your credit score. The higher credit scores, the lower the interest rates on loans. Lower credit scores attract higher interest rates than average. Experian did research on interest rates and scores to confirm this claim.
The research is based on the VantageScore model. From the study, individuals with poor scores can get interest rates as high as 15%. Yet, another individual opting for the same loan but with an 850 credit score gets an average interest rate of about 6.65%. As you can see, the difference between these two rates is significant.
Aside from the low rate benefit, you also earn the right to negotiate your interest rates. Unfortunately, poor credit scores never give you that opportunity.
3. Fewer Challenges with Paying Rent
To rent an apartment, one has to pay huge security deposits when applying. Some landlords are firm with their stance, so they need a full security deposit. Others may allow you to make payments in installments.
Landlords now screen the credit scores of potential tenants before giving the apartments. So if you are considering renting, you need a credit score of at least 620 to qualify. But the range may vary for some landlords.
Some may accept 580 as the least, while some landlords accept nothing less than a 660 score. Having a bad credit score limits your chances of finding an apartment. It might be worse if the poor score came from owing your previous landlord.
No one wants to lease an apartment to a tenant with a not-so-good credit score record. You can liken this to the fact that no one wants to lend money to someone they are not sure will pay back.
4. You Increase Your Chances of Getting Loans
Money lenders or providers use credit scores to know your loan worthiness. A poor score may not qualify for loans in most instances. A poor credit score also limits your loan options. When loans are available, interest rates are exorbitant.
You need to know that your chances of getting a loan don’t only depend on your credit score. The top factors lenders consider are your income and debt ratio. This implies you can still get denied a loan after applying for a good credit score. Good credit scores improve your chances, not grant you immediate loan assessment.
5. Applying for Some Jobs is Easier
Some organizations now check the credit reports of their potential employees. Employers may not consider potential employees who make late payments or owe money. No one wants to get affiliated with someone with a poor credit score.
Before you search, ensure your credit score is good enough for the position. Review and improve your credit score often. Then, you can get an updated credit score report from a reputable credit bureau.
6. Fewer Security Deposits on Utilities
Some security deposits are enormous amounts. Paying huge deposits can be overwhelming when you don’t plan to spend so much. In unplanned situations, having a good credit score means you don’t have to pay much for a security deposit.
This applies to a utility service set up with your details. Sometimes, you don’t have to pay anything. An instance is transferring utility services with your details to a new location.
7. Increased Loan and Credit Card Limits
Having sound creditworthiness helps you access better loans. Once you show you can pay back borrowed money from your score report, lenders are willing to part with more. In contrast, you have a narrower borrowing limit if your poor credit score. You need to know that the amount of money you can borrow depends on your income as well as your credit score.
A good credit score also qualifies you for lower credit card interest rates and rewards.
Bottom Line
Your credit score is vital as it influences your day-to-day activities. Credit scores affect where you work, live and how you live. The score sometimes affects who borrows you too. Thus, it is safe to say your credit score affects the quality of your life in general.
So to improve your life, you can as well improve your credit score first. So it would be best if you always focused on getting a high credit score.