Your credit score matters for many reasons. Discover here why you need to worry about this important number.
Your credit score is a score assigned by different lenders or rating agencies. Although your credit scores are very different, the two most used odds are your credit score and your Credit Score. Both are on a scale of 300 to 850, and the highest scores are better.
You have to work hard to get a good credit score and make sure you pay your bills on time and borrow money, but not too much. It can sometimes seem like a lot of effort to borrow responsibly to build your score – but it’s worth it because your score can have a huge impact on your life.
Not convinced that your score counts? Read on to discover the top three reasons why you need to worry about your credit score.
1. Your credit score determines if you will be approved for a loan
Chances are good that you will need to borrow money at some point. You may need a mortgage to buy a house or a student loan so that you or your children can afford to study. You can also choose to choose a credit card because you can charge daily purchases to your card and earn rewards for your expenses.
If you want credit card approval or any type of loan, you need a good credit score. In fact, with a credit score below 580, you would probably not be able to qualify for a mortgage. With a score between about 580 and 670, your mortgage options would likely be limited to FHA loans or risky loans. A low score can also mean that you can not get a personal loan, are not eligible for a private student loan, and just get a secured credit card with assets as collateral.
You do not want to be unable to get the financing you need to achieve big goals, including buying a home or car. You also do not want to get stuck in a situation where you can not access a credit card if you need it. You must establish your credit score so that when you apply for financing, you have the choice between different lenders offering affordable loans with good terms.
2. Higher credit rating may lower interest rate
Your credit score not only determines whether you are allowed to borrow, but also the amount of interest you will pay for the lien. The interest rate difference can be substantial if you have an excellent credit score compared to a bad one.
If you have a credit score greater than 760 and you want to borrow $ 300,000 to buy a house, you can expect to pay an interest rate of about 4.172% as of January 2019, according to myFico. With this loan, your monthly payment would be approximately $ 1,462 and your total interest on your loan would be $ 226,375. If you had a score of 670, your interest rate would probably be around 4.785%, which would leave you with a monthly payment of $ 1,571 and a total interest cost of $ 265,660.
Unless you can afford to waste about $ 40,000 more and you pay $ 109 more a month for the same house, it’s easy to understand why you need to worry about your credit score.
It’s not just a mortgage for which you pay more. Auto loans, private student loans, personal loans and even credit cards can all have a higher rate if your score is lower.
3. The companies you do business with check your credit
If you do not plan to borrow money, you may think that your credit score does not matter. Unfortunately, that’s not true. Lenders and credit card companies are not the only ones who check your credit: many companies you do business with use your credit score and your credit report to determine how responsible you are.
Homeowners usually withdraw your credit before deciding to rent you, for example, and you may be denied an apartment or have to make a larger security deposit if your score is not good. Your auto insurance rates could be higher if your credit score was too low and you might not be able to get a cell phone contract. Utility companies may be concerned that you will not be paying and will require a larger deposit when you are connected to the electricity and sewer service or cable television.
As if all of this was not serious enough, many employers are also conducting a credit check as part of an audit of their employment history. This means that your job opportunities could actually be reduced if your credit is not good.
Your credit score matters clearly
Since your credit score can affect your job opportunities, your life situation and the costs associated with many financial transactions, it is clearly important to try to earn a good credit score. The good news is that if you borrow responsibly and pay your bills on time, earning a good score does not have to be difficult. This is really worth it because your credit score is important.