The first thing that a lender checks when you apply for a loan or a credit card is your credit score. It provides them with a basis for determining whether you have the potential to repay the borrowed money. So there are a variety of benefits to maintaining a good credit score.
A Good Credit Score
There are a lot of credit scoring models available, but most lenders use borrowers’ FICO scores to assess the credit risk and determine whether to extend credit. A FICO score is a credit score created by Fair Isaac Corporation that considers five areas to determine your creditworthiness: payment history, indebtedness level, credit used, length of credit history, and new credit accounts.
A FICO score model places score range in between 300 to 850 and breaks up scores in the following manner:
Poor Credit: Below 500
Good Credit: 670 to 739
Very Good Credit: 740 to 799
Exceptional Credit: 800 and above
Benefits of Having a Good Credit Score
The higher your credit score, the more likely you will be eligible for loans with lower interest rates, high amounts and lower fees. Hence, having a good credit score comes with several advantages such as:
1. Better Availability on Loan Products
People with excellent credit scores have access to majority loan and credit card products since lenders would have no reasons not to lend them. Moreover, they can shop and compare rates more effectively. They also get to find the best terms that include higher money limits, making big purchases easy to finance.
2. Lower Interest Rates on Credit Cards & Loans
The interest rate you pay for borrowing money is often tied to your credit score. If you have a good credit score, you will qualify for the best interest rates, resulting in lower finance charges on credit card balances and loans.
3. Faster Loan Approvals
A good credit score does not guarantee loan approval since lenders will still look at your income and debt. However, it does increase your chances of being approved for loans faster than people with a lower credit score. So you can request a loan without any worries!
4. Approvals for Higher Limits
Maintaining a good credit score ensures the lenders that you will return the borrowed money on time after considering other factors. Hence, you can even get approvals for higher amount limits with a good credit score.
Note that you may still get approved for some loans with a bad credit score, but they will limit the amount here.
5. Get to Avoid Security Deposits for Utilities
A few utility companies consider your credit report and scores to evaluate how likely you will pay the borrowed money on time. If you do not have a good credit score, you must pay a security deposit to begin a utility service.
With a good credit score, you skip the entire hassle of paying a security deposit to establish utility service in your name.
6. Better Car Insurance Rates
Auto insurers will use the bad credit score against you and penalise you with higher insurance premiums. If you maintain a good credit score, you get the advantage of paying less for insurance than people with lower credit scores.
7. More Negotiating Power
If you maintain a good credit score, you get the power to negotiate a lower rate of interest on credit cards and loans applications. Moreover, if your credit score is impressive enough, you even get attractive offers from companies.
Bottom Line
Maintaining a good credit score is essential if you want to take advantage of the several benefits mentioned above. Even though you are not planning on applying for a loan or a credit card anytime soon, check your credit score from time to time for your future!
Author Bio:
A finance enthusiast, Mihika Ghosh, works as a Digital Content Creator at Fit.Credit, an all-in-one app that helps you check your credit score for free, stores your financial documents, and gives you timely payment reminders. She creates content that educates people on how they can improve their credit scores along with other investment and finance-related topics. When she is not working, she loves to travel and read to keep up with all things finance and economics.
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