Why Are Credit Scores Important?

Your credit score is considered as one of the most crucial aspects of your financial life. Your credit score basically follows you forever and this will play a big role in most major financial cases throughout your entire life. Most people think that credit scores really matter in terms of being approved for a credit card or a loan, yet it goes beyond that.

Lenders combine credit score with the details in the credit report to evaluate the risk of a person as a borrower. If your credit score is high, you will be likely less of a risk. If the credit score is low, the lenders may question one’s ability to pay his or her debt.

Improving the credit score may take some time, yet it is definitely worth the effort. Below are the other reasons why credit scores are important to create a solid credit profile:

• Access to Much Better Financial Deals

If you have good credit score, you will get an access to much better financial opportunities and deals. You might be able to refinance your property at low interest rates. You can also access better rewards on your credit cards with low interest rates. Plus, you could even be offered with invested accounts, checking accounts, and credit cards that have signing bonuses. Being able to access such financial deals will help you manage your resources better in the end.

• Credit Scores Will Help You Once You Decide to Borrow Money

Chances are, at some point, you will have to borrow money. If you like to purchase a house, you’ll absolutely have to take out mortgage. A lot of people borrow to purchase a car. If your credit score is good, it will save you lots of dollars over your loan’s life. For instance, you will get better mortgage interest rates with high credit score than you could with low credit score.

If you will be able to get 4.29% rate on a mortgage that is worth $200,000, the total interest you will pay would be $155,884. However, if your credit score is low and you only qualify for 5.5%, you’ll pay an interest worth $208,808. Aside from that, you would also have high payments monthly. This same principle applies whether you’re borrowing for an education, a personal loan or a car. If your credit score is better, the more you could save once you decide to borrow. Remember that the score that the lender sees might be different from the credit score you are seeing. But, it depends on a credit reporting company that your lender uses when pulling your scores.

• Credit Scores May Impact the Insurance Premiums You Are Paying

While several states prevent the insurers to use credit score to set insurance premiums, most states allow this. With low credit score, you might end up paying more every month for the coverage. But, you might pay lots of money less in the insurance premiums over a lifetime through enhancing your credit score and impact your credit score positively.