Like most people, you probably think your credit score doesn’t affect you all that much. You may believe your credit score is only important if you’re trying to get a loan or mortgage. However, having a good credit score is very important, and several reasons exist. Here’s a look at just a few of them.
Better Chance of Loan Approval
Loan providers, such as banks and other financial institutions, use your credit score as one of the main factors in determining whether to approve you for a loan and at what interest rate. Having a good credit score means you’re a low-risk borrower, which could lead to a lower interest rate on your loan. For example, let’s say you’re looking to take out a $10,000 loan with a three-year repayment period.
A credit score of 700 could get you an interest rate of 10%, resulting in monthly payments of $333 and total interest paid of $1,099. But if your credit score is 780, you may qualify for a lower interest rate, say 8%, which would lower your monthly payments to $309 and the total interest paid to $999. A difference of 3 percentage points in your interest rate could save you $24 a month, or almost $900, over the life of the loan.
More Negotiating Power
Being able to bargain for a lower interest rate based on your credit score is one thing, but did you know that you can also use your credit score to negotiate other terms of a loan? For example, if you’re looking to buy a car, having a good credit score may give you the leverage you need to get a lower purchase price or better financing terms. The same is true when you’re looking to lease an apartment or get a new cell phone plan. In each case, your credit score may give you the negotiating power you need to get a better deal. Nowadays, you can use crediting apps to improve your credit management skills and build your credit. These modern tools are user-friendly and allow you to keep track of your credit score and utilization. Always pay your bills on time to avoid late fees and keep your account in good standing.
Higher Limits on Credit Cards
That’s important because the amount of debt you can carry on your credit cards directly impacts your credit utilization ratio, which is another factor that influences your credit score. Your credit utilization ratio is the revolving credit you have used divided by the amount of credit available. A lower ratio signifies a lower default risk, which helps your credit score. This, in turn, can give you greater financial flexibility in making larger purchases or covering unexpected expenses. Moreover, a high credit limit can also be useful in an emergency, as it may allow you to access cash more quickly than if you had a lower limit.
Avoid Security Deposits on Utilities
For most people, utility bills are one of the biggest monthly expenses. If you have bad credit, you may be required to pay a security deposit when you start service with new utility companies. However, the utility company may be willing to waive the security deposit if you have a good credit score. The deposit is typically equal to one or two months of service charges and is used to protect the company against nonpayment. While paying a security deposit may not seem like a big deal, it can be a financial burden for someone who is already struggling to make ends meet. Fortunately, you can choose a utility company that offers programs for low-income customers.
Easier Approval for Rental Housing
A good credit score is important for many reasons. One reason is that it can make it easier to be approved for rental housing. Landlords often check credit scores as part of their screening process for potential tenants. A high credit score may give you a leg up over other candidates who have lower scores. A good credit score can also help you get approved for other housing types, such as apartments, condos, and houses. In addition, a good credit score may help you get a lower interest rate on a mortgage if you’re looking to buy a home. Whether you’re renting or buying, having a good credit score can give you an advantage in the housing market.
A good credit score is essential because it can save money and make getting approved for loans and credit cards more accessible. A high credit score means you’re a low-risk borrower, leading to lower interest rates on loans and credit cards and better terms overall.
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