Good credit scores are highly prized today, with the economy and incomes shakier than normal. In the midst of all this volatility, banks and lenders look for some stability and safety too. And that’s where your credit score comes in. A good credit score, or one that falls within the healthy credit score range, can get you better deals on financial products and enhance the amount banks or credit card companies are willing to lend you. In fact, the number of ways a good credit score can change your financial prospects is more far reaching than you imagined.
Banking on your trustworthiness in the past
A credit score in essence summarizes for a bank or lender, the chances of your repaying the debt you take on. Therefore a history of good repayment, a track record of not falling behind on payments, and a generally blemish-free past is taken as an indicator of future good behavior too.
Beyond a point, if a credit score is really bad, it won’t matter whether or not you have the capacity to repay. Unlike looking purely at someone’s income and expenses, a credit score tells the lender of your intent to pay. If you have all the money needed to pay your utility bills each month but are constantly missing payments out of carelessness or otherwise, it shows a lack of financial rigor and is a red flag.
Five ways credit scores impact your financial life
Here’s a look at some of the ways a good credit score can help you get loan approvals and better deals on your credit cards and other debt, and also contribute to a stronger financial base.
1. Determining the Credit limit on your credit card
A credit score has bearing on the credit limit on your cards. A bank or card issuer will take on only as much risk with a card holder, as they feel is appropriate. This level is determined by your credit score, among other things. A higher credit score is likely to get you a higher credit limit.
2. Yes or No decisions on mortgages
With the subprime lending crisis in the market still fresh in our memories, it comes as no surprise that banks rely heavily on credit scores to decide whether or not an individual is credit worthy. A good credit score can mean the difference between whether you can buy that dream home you have always wanted, or a smaller one that the bank is willing to lend you money for.
3. Interest rates on your debt
Even if you do get by without a good credit score, be aware that the interest you pay on a loan with a good credit score will likely be lower than if you had one outside the healthy credit score range. That’s because the lender has to cover the risk of your chances of default by recovering higher interest payments. In other words you will pay more to buy essentially the same product or service, than someone with a better credit score than you.
4. Business loan approvals
If you plan start a small business and are looking for funding from a bank, or if you intend to take a small loan to expand your business, not having a good credit score can be a major hindrance. Stricter laws and regulations mean checks have become more stringent and banks are forced to comply.
5. Renting an apartment
Yes. Your credit score could even swing things in your favor or work against you with apartment rentals, depending on whether it is a high score or a low one. Under federal law, a landlord can now use your credit score to make the decision on whether or not they will take you on as a tenant.
If you find your credit score range tends to be lower than you would like, you can find easy tips to follow on how to improve credit scores. Whatever you choose, just know that a good credit score can save you money and heartache in the long run, and any effort you put into working to improve it is time well spent.