You’ve probably been told at some point in your adult life that your credit score is important, but do you actually know why? Probably not. You might not even really know what a credit score is or how it’s calculated. Thankfully, with a little bit of education and research, you can become an expert and be well on your way to achieving an amazing credit score of your own. Starting with the basics, a credit score is basically a number that is given to you based on your credit history and payment history to tell lenders how high of a risk it would be to lend to you. Scores can range from 300 to 850 and the higher the number, the better! Now that you know some of the basics, here are some of the reasons why a good credit score can benefit your everyday life.
Interest Rates
One reason why your credit score is important is that your credit score affects your potential interest rates for loans. For example, lenders will usually set a higher interest rate for those with a lower credit score in order to offset the higher risk that they are taking by giving you a loan. However, if you have a high credit score lenders won’t see you as much of a risk so they will consequently give you a lower interest rate. Also, lenders know that someone with a higher credit score will attract more competition from other lenders out there who want to earn your business by giving you a lower rate. On the other hand, with a lower credit score, lenders know that it might be hard for you to get a loan elsewhere so they don’t have to offer you a competitive interest rate. Interest rates might not seem like a big deal right off the bat but they can really add up over time, especially on high-amount long-term loans for things like homes and cars.
Deposits
There’s nothing more annoying than security deposits. But did you know that a good credit score can actually help you waive or at least decrease your security deposit amount? That’s right! If you are looking to rent an apartment or even set up your utilities, odds are that they might be looking for a security deposit unless you have a stellar credit score that shows that you consistently make your payments on-time.
Job Applications
Sometimes during the job application process, a prospective employer might want to run your credit history through a credit report service to make sure that you are financially responsible. This obviously doesn’t happen right off the bat and you usually have to consent to them running your credit, but if you make it far enough in the process for a position that requires a high amount of responsibility dealing with sensitive information – they want to make sure that you can handle that responsibility! This part of a background check can be surprising to many, so it’s always a good idea to demonstrate that you are responsible in all areas of your life – financial and otherwise.
Credit Cards
While you might think that all credit cards are created equal – that’s definitely not the case! In fact, better credit cards are often reserved for those with really good credit. But what makes a good credit card? Well, it really depends on your personal preferences and priorities. However, some common perks include lower interest rates, travel rewards, cashback, and tons of other benefits. So if you are a world traveler, you may want to look into cards with some of the best travel rewards out there. Or if you like to use your credit card on everyday purchases and want to get cashback, look for cards that will give you that. All of these options will be available to you if you have a good credit score.
Insurance Rates
Did you know that a good credit score can actually help you get a discount on your insurance rates as well! Many people do not. But it’s true! This is because a good credit score will show the insurance company that you will pay them on time every month. Another reason is that studies have shown that people with lower credit scores have a tendency to file more claims. So if you want to get a better rate on your car or home insurance, improving your credit score is one way to do that.
Overall, there are so many reasons why your credit score is important. Although you might not think that your credit score affects your life that much – it really does! And this goes beyond making big purchases like homes and cars. It can help you get lower insurance rates and help you obtain credit cards where you can earn tons of cashback. So grinding now and taking care of debts to increase your credit score will definitely pay off in the future with tons of benefits.
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