The Importance of Maintaining a Good Credit Score

This is the foremost question a lender or realtor asks when you are interested in buying a house or other real estate. As a consumer, you have no doubt heard advice like “It is important to have a good credit score.” or “Be sure to pay your debt on time”, but the importance of a good credit score cannot be understated. Having a good credit score gives you greater control over your financial situation, allowing you to strategically set your financial goals, enjoy better mortgage rates, and pay lower down payments. If you want to get your dream home or, something this article hopes to demonstrate.

A credit score is a three-digit number generated by a computerized analysis of your credit history to measure your creditworthiness. The rating information is gathered from three credit reporting agencies, namely Equifax, Experian and TransUnion. This formula was created by the FICO agency, producing scores ranging from 0 to 850. According to the 2016 Statista report, 43 percent of Americans considered a credit score between 721 and 780 to be ‘good’. The survey also covered that according to 32 percent of respondents, a credit score between 661 and 720 was enough to qualify for a mortgage. Those who received Federal Housing Administration loans averaged 680. It is interesting to note that before the 2008 financial crisis, scores as low as 600 were eligible for mortgages.

What additional perks does a higher score give you?

It’s all about risk. The higher the score, the lower the risk, and the better the creditworthiness associated with you to pay-off your debt on time and in full. But a good credit score grants you more than just saved money on mortgages. It also helps you with negotiating credit limits, settling on security deposits for rents and utilities, and acquiring employment.

Lower interest rates on Mortgages.

A good score of 720 or higher can get you lower interest rates on mortgages and save you significant amounts of money now and in the long run. Consumers with good credit scores are offered the lowest available mortgage rates. Refinancing is also an option if you already have a home and your mortgage is significantly higher than the cheaper rates currently offered. This is specifically true for homeowners who managed to significantly improve their credit score after applying for the mortgage. However, one should be aware of the associated fees before deciding to refinance their home in case they can’t afford to do so.

Approval for higher credit limits.

Financial institutions such as banks, credit unions, investment bank are willing to lend more money to consumers with a good credit score. Consumers who have got high credit scores get to negotiate better interest rates since they are eligible for higher credit limits.

Rent and Utilities.

A good credit score is essential for a renter to obtain approval from a landlord. In several cases, a landlord may charge a higher security deposit if your pre-approved credit score is lower. If your credit score is low, you will either be charged a higher security deposit or be required to obtain a “letter of guarantee” in which a friend or family member becomes the guarantor to ensure you against a loan default.

Better insurance rates.

Insurance companies may use credit scores to determine rates for policies. They use the credit score and other metrics to come up with an “insurance score,” which signals to the company an individual’s likelihood of filing a claim. Consumers with higher credit scores are offered the best rates on home and auto policies since they are considered less likely to file claims.

Employment.

The credit history of potential employees’ is now being considered by many employers prior to making a hiring decision since it is often related to whether or not a person exhibits responsible behavior. A strong credit history and good score portray an individual as diligent and focused, personality traits that transfer well to the workplace. Because they are thought to be less preoccupied with money worries at home, applicants with good credit scores are attractive to employers.

One should always try to maintain a good credit score by timely paying utility bills, keeping one’s credit card balance as low as possible, and applying for new credit cards cautiously. Credit score comes along with a lot of perks and one should always remember to use it to his own advantage. It gives you an extraordinary amount of leverage.