How well are you taking care of your financial health? Your credit score tells a lot about how you manage your money, which is why there are several important reasons it’s absolutely crucial to maintain a good — if not excellent — credit score.
What is a Credit Score?
A credit score is the information that indicates an individual’s creditworthiness. Credit bureaus use their formulas or models to calculate a person’s credit score. In general, certain variables influence an individual’s credit rating:
- Payment History (35%): Are you paying your bills on time? Payment history has the most significant weight on your credit score.
- Credit Utilization (30%): How much of your available credit are you using? The more credit that you have used, the lower your credit score.
- Credit History (15%): How long have you used credit? The longer you have used credit, the better your credit score gets.
- Credit Mix (10%): What are the types of credit have you handled? Revolving loans lower your credit score while installment loans lower your credit rating.
- New Credit (10%): How often are you applying for new credit? The more inquiries on your credit history, the lower it gets.
Why Having a Good Credit Score is Important
Your credit score gives a quick overview your financial well-being. To better understand why a good credit score is essential, take a look at 2019 credit score trends. There are different reasons why you should keep your credit reputation in good condition, and here are just some of the most significant:
- It Helps You Get Better Loan Deals. At some point in your life, you will need access to loans to buy a house, purchase a car, or pay for a very urgent emergency expense. A bad credit score not only affects your chances of getting a loan, but it can also prevent you from getting better interest rates. Numerous direct lenders are offering no credit check loans, but these types of credit come with exorbitant interest rates and unreasonable fees. High-interest rates typically apply to borrowers deemed as high-risk. A good credit score establishes your creditworthiness and allows you to access a variety of loan deals with better rates from banks and lending firms.
- It Gives You Negotiating Power. Having good credit lets you obtain a loan with less difficulty. Not only that, but it gives you the ability to negotiate for better loan terms and more significant loan amounts. Loan providers, especially traditional lenders and banks, will require you to provide a guarantor to co-sign the loan agreement or need you to assign collateral as security for the loan. If your credit score is excellent, you can request for longer loan terms and ask for a higher loan amount.
- It Helps You Qualify for Rentals. Many landlords screen a potential tenant through his or her credit score. A landlord considers a good credit score as a sign of creditworthiness. Having a flawed credit score will reduce the chances of getting the apartment that you want. It can be challenging to find a landlord who accommodates renters with reduced or zero credit.
- It Boosts Your Chances of Getting a Job. Some companies conduct a thorough background check on their applicants before offering them a job. A bad credit score can hurt your chances of getting the job that you want, especially if you are seeking work that involves handling money. An employer will deem you unsuitable for your desired employment position if your credit score is too low.
- It Gives You Access to the Best Credit Cards. Your credit score is valuable information to banks and credit card companies. You can become pre-qualified for a credit card that lessens the hassles of applying for one. Your high credit rating is an assurance to providers that you will be able to handle credit card debt responsibly.
- It Boosts Your Confidence. Knowing that your credit score is excellent will boost your confidence in handling financial and non-financial matters. You are deemed trustworthy and reputable because of your creditworthiness. Maintaining a good credit score not only positively impacts your financial health, but it’s also great for your overall peace of mind.
There are so many reasons why you should make an effort to build and maintain a solid credit profile. You will be able to access lower loan interest rates, higher loan amounts, and better insurance rates when your credit score is well-maintained. You can get qualified for leases, credit cards, and jobs without too much effort. Achieving a good credit score is not easy, but it is not impossible. Maintaining an excellent credit reputation is challenging, but keeping your score in excellent condition will benefit you immensely in the long run.
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