People often underestimate the importance of having a good credit score and report.
In this article, I am going to walk you through how credit can affect your money management now and in the future.
Here are 5 reasons why a good credit score is important:
1. REDUCED INTEREST RATES ON BORROWED MONEY
Over time, you can save money by having lower interest rates on credit cards and loans, thanks to good credit.
2. GREATER CHANCES OF LOAN AND CREDIT CARD APPROVAL
If your credit score is high, you have a greater chance of getting approved for loans and credit cards from lenders and credit card companies.
3. BETTER LOAN TERMS
Having good credit can result in better loan terms, such as higher borrowing limits, in addition to lower interest rates.
4. LOW OR NO SECURITY DEPOSIT REQUIREMENTS
Having good credit can result in better loan terms, such as higher borrowing limits, in addition to lower interest rates.
5. EMPLOYMENT OPPORTUNITIES
When hiring new employees, especially for jobs requiring financial responsibility, some employers run credit checks.
Building and Maintaining a High Credit Score
Here are some ways to maintain and build on your credit score to keep it healthy and high:
1. PAY YOUR BILLS ON TIME
Your credit score can suffer greatly from late payments. Make sure that all of your bills—including credit card and utility bills—are paid on time.
2. MAINTAIN LOW CREDIT CARD BALANCES
Using a significant portion of your credit limit, or high credit utilisation, can have a bad effect on your credit score.
3. BUILD A LONG CREDIT HISTORY
Your credit score is influenced by the length of your credit history.
4. KEEP THE NUMBER OF NEW CREDIT INQUIRIES TO A MINIMUM
If you make too many hard inquiries quickly, your score may suffer.
Understanding Your Credit Report
It’s important that you understand your report and what it contains. You can do free annual checks by many of the online credit reporting agencies, like; Equifax and Experian, to name just two. Order your report and take a look at how yours stacks up.
Your credit report will include your credit history; including account details, payment history, credit inquiries, and public records like bankruptcies.
Make sure to regularly check your credit report for errors, including false payment statuses, accounts that are not yours, and inaccurate personal information.
Impact of Credit on Loan Eligibility and Interest Rates
Credit scores are used by lenders to evaluate risk. A higher score translates into lower risk, which makes you a more desirable borrower.
Your interest rate is determined, in large part, by your credit score. Better scores usually result in cheaper rates, which means you will pay less money back over the course of the loan.
Certain insurance providers base their auto and home insurance rates on credit scores.
Conclusion
Having good credit provides many financial opportunities. Understanding and managing your credit puts you in a better position to pursue favourable financial opportunities.
Regularly monitoring your credit report and score, developing responsible credit habits, and understanding how your financial behaviour affects your credit can result in significant savings and opportunities throughout your life.
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