The benefits of having good credit
Understanding Credit Scores.
A credit score is a number between 300 and 850 that dictates your creditworthiness.
We are sure you have heard about credit scores at some point in your life, even if only now you are starting to think about them. You are bound to have heard about credit scores at some point from your bank, maybe adverts for credit checkers or plans that help to boost your score and so on.
With credit scores, the higher the number, the better. Lenders look for those with high numbers on their credit scores, because a high number on a credit score means there is less risk in them giving a loan to this person, as they are more likely to pay off their loan in a timely manner.
Why do you want to have a good credit score?
Well, there is an obvious reason you want to have a good credit score, and this is that if you ever need to borrow from a lender, you are more likely to get a good deal with a good credit score.
But having a good credit score and managing your credit score is alongside the rock-solid pieces of financial advice everyone should strive to follow, right next to; save money for an emergency fund, pay down your debts, and do not spend more than you can afford to.
There are more reasons to keep maintaining good credit, and these are some of the reasons why.
Savings on interest rates!
In the case that you take out a large loan to finance a big purchase, such as a home or a car, even the smallest difference in the interest rate can end up costing you thousands of dollars over the lifetime of a loan.
Borrowers who have a high credit score can secure the lowest interest rates available at any given time for a mortgage or an auto loan, which can mean saving on the big bucks. No one wants to be paying out more than they want to.
Better availability and terms on loans.
Borrowers who have high credit scores will usually have access to the most loan and credit products, simply because lenders want to lend to them. They are safe, and secure borrowers, and lenders are eager to lend to the safest customers. They will always prefer lending to someone with a high credit score and high chance of paying back the loan, than someone with a low credit score who may end up struggling to do so.
People who have high credit scores can shop around and compare rates better, as well as finding better terms, high dollar limits, and thus making it easier to finance bigger purchases.
Best credit cards.
High credit scores also give you access to the most rewarding credit cards on the market as well, including those which offer the lowest interest rates, and best rewards such as cash back offers, points, and so on. You are also more likely to qualify for an introductory APR at 0% as well. This can mean big savings over time.
Discounts on insurance.
While you cannot be turned down for insurance if you have a low credit score, having a high credit score will help you gain a lower insurance premium on car insurance.
It is not unheard of for landlords and rental companies to take potential tenant credit scores into consideration when trying to determine if a person is financially trustworthy and responsible. The higher your credit score is, the more likely you are to be approved for a home, or apartment.
It is also possible that you could save money on your security deposit if you have a higher credit score.
What counts as a good credit score?
So, getting a good credit score is one thing, but if you are totally new to this concept you may not entirely know what counts as a good credit score anyway. Well, while there are endless credit-scoring models available on the market, one of the most common is the FICO Score model, which typically places scores in the range between 300 and 850. FICO then breaks up these scores into different bands that help you understand what is good, bad, and great.
Under this model you have 579 and less, which is considered as being poor, then 670 to 799 is good, 740 to 799 is very good, and 800 or more is exceptional. Typically, in the eyes of most lenders, a score of 700 plus is seen as good. So if your credit score is over 700 you can expect to reap some of the benefits we have previously mentioned.
Improve your credit score!
While every person has dozens or even hundreds of credit scores, the good news to hear is that what makes scores go up and down across every different model is always the same, and the only difference between these models is who they apply different weights to different factors.
There is no magic way to get a good credit score, but typically speaking, if you want to increase your credit score, do the opposite of whatever made it go down in the first place. Look at your payment history, your credit utilization ratio, and your number of accounts. Credit scores look at all of these, so start there first and see where you can make improvements.
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