While a majority of people understand the importance of
having a good credit history, what they might not know is just how much their
life is affected by the quality of their credit scores.
The fact is, having a good credit score is beneficial in many
ways, some of which you’re even not aware of.
But before we look at some of these benefits, it’s prudent
that you’ve an idea of credit history and make sure you know what is the good credit score.
Credit
History Explained
Credit history refers to a detailed
record of how you manage your financial obligations.
Ordinarily, credit history comprises
the total amount of debt, number of credit lines, and how you’ve repaid your
previous debts.
Credit
Scores
A credit score, on the other hand, is
a three-digit number that provides a snapshot of your credit history.
According to Experian,
several factors are used to determine your credit score rating and some of
these include;
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What
is Affected by your Credit?
In my opinion, a credit score affects
everything in your life, literally.
For a start, assuming you’re looking
to borrow money for any reason- whether to purchase a car, get a mortgage or
even take a student loan, your credit score determines how much it will cost
you.
According to The Balance,
having a low credit score means that you’ll have a harder time securing a loan.
Most of the lenders will usually shy
away from offering loans to borrowers with a low credit score.
Sure, while credit score might not
necessarily be the only factor that determines whether your loan is approved,
it still plays a huge role, and it is impossible to ignore it.
And in case you get lucky and secure
a loan, the interest rates and payment requirements will be high. Compared to
borrowers with a good credit score, your monthly payments will be more per
month to pay off the loan of the same value.
The bottom line here is that a bad
credit score will dearly cost you.
Credit score goes beyond the monetary
aspect and borrowing of money; according to Nerd Wallet, an
increasing number of potential employers are now checking on credit scores to
determine whether to hire the applicants.
Insurance companies, on the other
hand, will, in most cases, pull your credit data to calculate your premiums,
while landlords will look at your score to approve your rent.
As you can see, it’s evident that
credit scores play a huge role in your life and can drastically affect your
living standards.
What
Does Good Credit Get You?
Flipping the coin to the other side,
you’ll realize that good credit comes with plenty of perks, and we shall see
how you can take advantage of a good credit score.
First things first, a good credit
score will result in a cheaper life.
With a good rating, your chances of
getting approved or a loan are high, and once you secure the loan, the interest
rates are considerably lower, meaning you get to save on the rates and
cumulatively, they can add up to something substantial.
Having a good credit score similarly
gives you access to better credit cards with awesome rewards and at no fees. At
times, your lender will even offer perks when you upgrade to better accounts
without the need for minimum balances or ATM fees.
And when it comes to securing a
mortgage, having good credit will significantly improve the chances of getting
better interest rates on your mortgage. Considering that mortgages are
typically large loans in the hundreds of thousands of dollars, even a 1 or 2%
difference in the rate will often result in significant savings over the term
of the loan.
Conclusion
Sure, there can be a lot of emotion
around credit and debt, but it’s evident that having a good credit score is of
the essence.
Nearly everything in our lives is
tied in one way or the other to it, and if used correctly, life can be easier
and cheaper.
But first things first, you need to
understand how the credit process works, and this will help in easy management
and make it work for you.
