The economy today runs on credit, if you want a student loan, mortgage loan or you just want a credit card to pay for your lunch meals, a company will be giving you credit. Your credit score is defined by a three digit number that that determines the likelihood of an individual to pay back the borrowed money and it is the key to one’s financial life.
An individual’s credit score is calculated using his or her payment history, length of payment, frequency of loan application and the current debts. Since scoring systems use different criteria, the major credit bureaus may give different credit score for the same individual but the score will have the same credit information.
Why you need to have good credit
As stated above, loans are an important part in life, everyone needs to have a good credit. Building a high credit and maintaining it can have an impact in the quality of life now as well as in the future especially when you are considering applying for loans and prepaid debit cards. Here are some the reasons why you need a good credit score.
· When buying a house
Purchasing a house is one of the greatest investment you will ever make in your life but it can be hard to achieve if your credit score is not good. Even though the housing market has rebounded, lending companies are still very cautious and there are strict requirements in order to qualify for a loan and anyone with a bad credit history will not qualify for a mortgage loan.
Also, renting a home also involves credit check and if you have any delinquent credit, you may not be able to rent the apartment or house or you may be required to pay a higher deposit compared to a tenant with a good credit score.
· Buying a Car
What is a good credit score to buy a car? Cars are a common purchase and most people take loans to be able to buy the car of their dreams. Though car loans are smaller compared to house loans hence one can easily get even with a not so good credit score but a poor credit score will get you a car loan with a large down payment and higher interest rates on the acquired loan. This means that you will pay much more compared to another person with a better credit score.
After buying the car, you need auto insurance and almost all insurance companies factor in the credit score when calculating the premiums payments. Therefore, having a good credit will help you save on car insurance money as well.
· Starting a Business
If you plan to start a business and you need to acquire a business loan, the credit score is a major factor in determining whether you qualify for financing. Whether you are looking for finances to expand an existing business or you are looking to start a new business, your credit score will certainly affect your eligibility to get the business loan.
· Getting a Job
Employers today are now checking the credit history of prospective employees before hiring them. This is common especially in the financial sectors and government organizations. A negative credit history or score can keep you from getting that dream job.
· Getting Lower Interest Rates
While a good credit will help get access to most of the financial assistance in most banks but those with a bad credit can still get the loans. However, if you have a damaged credit score, you will need more documentation in order to get the loan and the loan will have a higher interest rate. This is what banks use to outweigh the risk of lending money to individuals with a bad credit score.
If you want to access bank loans with a lower interest rates, you should strive to keep your credit score high by making all your payments on time, paying loans before the end of the set period and paying the credit card in full.
A bad credit score indicate that you are a risky bet. It does not only show how bad you are with paying debts but it can also imply that you are as irresponsible in taking care of a rented apartment, driving the car or showing up for a job. A good credit on the other hand implies that your financial situation as well as the rest of your life is right on track. If you need help getting your credit back in order, you should look into creditrepair.com.