Human society is adopting modernistic ways to deal with day to day financial matters. This is the reason why many people constantly have to check their personal credit report and credit score to determine what actions could be taken in the future.
Nowadays, more and more businesses are emphasizing on having good credit before extending their products or services to the consumers
Before getting into the details of why credit score matters, let’s get a clear idea of what credit scores and reports are.
What is a credit score?
A credit score is a three-digit mathematical number which evaluates an individual or a corporation’s credit history and the capability to repay financial requirements.
Essentially it is the numerical representation of your financial behavior, which evaluates your creditworthiness.
Generally, the score runs from 350 to 850 and it varies based on the scoring formula.
Credit problems may arise if your score is below 650. Your credit score matters because when it is lower, the chances of getting into the debt is increased. Moreover, creditors can get suspicious about whether or not to accept your loan request. When your credit score is higher, you can take out credit and loans at better terms and conditions.
What is a credit report?
A credit report contains information about the way you manage your credit and debt accounts. It has information related to how much debt you owe, how the bill is paid, where you reside, where you work, and whether or not you’ve filed bankruptcy, whether or not you have your home foreclosed or the vehicle gets repossessed, if you have a lawsuit judgment against you.
It would come as a surprise to you that your credit report contains lots of information and especially that your annual credit report can be over 100 pages long.
Business organizations might be interested to use your credit reports to determine if you should be offered an insurance; rent a house or apartment; provide you with internet, cable TV, utility or cell phone service. A credit report is also used to study the employees’ condition as the company may make employment decisions about you.
6 Reasons why your credit score is important
Here are the reasons why your credit score is important and you should work towards improving it.
a. Get low insurance rates
If you have a higher credit score, the lower can be your insurance premiums for house and car. It’s that simple. In some states, insurance companies are not allowed to tie the insurance rates to the credit scores. It is advisable to keep your credit score usually high so you can manage to keep the insurance premiums low and enjoy better terms and conditions on your future loans.
b. Earn credit card accolades
An excellent credit score can help you get some of the best credit card rewards. And using these cards won’t cost you much. Some of the rewards include bonus points on credit cards, free hotel stay on the account, and rewards may help you make the credit card payments.
c. Refinance your mortgage at a better rate
Everyone plans to be debt free when they want to retire. Refinancing can help you manage your mortgage and pay it off early. However, if you have a good score, it’ll help you take out a refinance loan at a better rate of interest.
d. Enjoy better borrowing opportunities
At some point in life, we all need to borrow money to buy things. If you want to buy a house, you will definitely need to borrow money. Most people borrow money to buy a car.
So, a good credit rating can not only save you a thousand dollars but also make the borrowing process simple and easy for the debtor and at the debtor’s best interest.
e. Better employment scope
Potential employers may do credit checks as part of the hiring process. If you have been reckless in your financial responsibilities, a prospective employer might not hire you. For example, the employer might believe your debt level can be very high for the salary offered. Some employers also check credit scores before giving a promotion or raise, especially for various financial positions.
f. You can save on monthly bills
It might come as a surprise to you that your credit is required to establish utility service. Your electricity company deals with you when you borrow one month of electric service. So, before offering the electric service, the company foresees whether or not you have a good credit This implies mostly to utility services including water, telephone, cell phone, and even cable services.
How are credit scores useful?
Usually, banks and credit card companies use the credit score to evaluate whether or not it’s risky for the organization to grant a consumer’s credit or loan request.
Lenders use credit scores to control things such as who qualifies for a loan and at what interest rate, while telecom companies, insurance companies, landlords, and government agencies utilize credit scores to predict risk.
What could happen if you have a low credit score?
A 2012 study conducted by the society for human resources management revealed that about 47% of employers use credit checks while hiring employees.
Mobile phone providers also run credit checks. In a worst-case scenario, there are almost half of all Americans who don’t qualify for mobile deals advertised.
Landlords do see your credit score before giving out the place to rent. So, a bad credit score can mean that you will have to struggle in finding a good apartment. In addition to that, landlords might request higher deposits or upfront rent payments if your score is low.
How can you raise your credit score?
If you are experiencing a low credit score, then it’s time to introspect and emerge out of the situation as fast as you can. Some actions which can help will include using a credit card responsibly, paying every bill on the due date, maintaining a low credit utilization ratio, and being conscious about when and how many new accounts you can open over time.