Why is a credit score important?

Why is a credit score important? Credit score can give you access to many products and services including getting approved for loans and qualifying for lower interest rates. Many companies use your credit score to determine service premiums. For example, insurance companies use credit scores to determine auto coverage rates.

Most landlords consider your credit score a major factor when approving your rental application. The apartment security deposit could also be waived due to having a good credit score. Some employers also run a credit check for job background check processes. That is right. In some states, employers can deny you a job due to having bad credit. Of course, it depends on the company, the job description, and the state.

The point here is that credit score is important and having a good credit score helps you qualify for better products and business services.

What is a credit score and why is it important to have a good score?

A credit score is a number that ranges between 300 and 850. There are 5 main categories of credit scores which are listed below.

• Excellent(800+)

• Very good(740-799)

• Good(670-739)

• Fair(580-669), and

• Poor(below 580).

The higher your credit score in this range, the easier it is to qualify for loans and business services. For example, a person with an excellent credit score will qualify for a lower rate, better terms, and more money than someone with a fair credit score when applying for loans.

Your credit score can also help you qualify for business services or discounts on electric accounts, security deposits for apartments, and more.

To get a good credit score, start improving the 5 major factors that affect your credit score. These factors include Payment history, credit utilization, age of credit history, credit mix, and new account activities.

Why is a credit score important?

There are many benefits of having a good credit score that you should understand as a consumer. A good credit score is important, but knowing how to take advantage of your score is more important.

Here are reasons why your credit score is important and the benefits of having a good credit score.

2. You qualify for lower rates when you have a good credit score

The higher your credit score, the less risk you pose as a borrower. This is because consumers with good credit scores usually avoid risky financial moves and pay their bills on time. For this reason, lenders give them competitive rates and better terms.

For example, if you were buying a car and have a good credit score, the auto loan rate you qualify for will be much lower than someone with a thin credit file or with bad credit.

3. You get a discount on your phone services

Companies can identify your financial behavior and money habits based on your credit score. A good credit score indicates you pay your bills on time and carry fewer risks. No company wants to lose money. That is why companies give better services and discounts to people with good credit. If you have a good credit score, take advantage of it by negotiating a discount with your phone company.

4. A credit score is important when applying for an apartment

Landlords like tenants who can pay their monthly rents on time without hustles. After all, paying your bills on time and respecting the terms of the premises makes you a good tenant. If you have a good credit score, you might qualify for a reduced security deposit on your apartment or have it waived. Just ask your landlord for credit score-related discounts.

You might also like: 9 Ways to Get an Apartment with Bad Credit

5. A good credit score is important when applying for another credit card

There are times when you might need an extra credit card. A good credit score is essential to get approved for a new credit card with favorable terms.

6. A good credit score can help you get a job

Most states have no restrictions on using credit checks as a deciding factor during interview processes. However, certain jobs such as those in finance and the military require good credit to qualify. Only a few states including Connecticut, Hawaii, Illinois, Maryland, Oregon, Vermont, and Washington prohibit using the credit history of job applicants as a deciding factor during job interviews.

In case, a credit check is necessary for the job you applied for, a good credit score will be important to qualify for the job.

Read more: Can you be denied a job because of bad credit?

7. A good credit score is important when you need a higher credit limit

A credit score is important when you want to increase your credit limit. Credit card companies start you with a lower credit limit and increase it gradually if you use the credit card responsibly. If you pay your bills on time and keep your credit utilization low, the card company might automatically increase your credit limit. You can also request a higher credit limit by calling the company or submitting a request online.

8. A good credit score is important when refinancing your loan

Like any other loaning process, most lenders require a good credit score when refinancing your loan.

You might also like: How to refinance your car loan?

How to increase your credit score?

Boosting your credit score is relatively easy if you know the right strategy. Here are effective tips to increase your score in as little as 30 days.

• Pay your bills on time. Payment history accounts for 30% of your credit score and late payments significantly lower your credit score. So, on-time payment quickly improves your credit score.

• Lower your credit utilization. Keeping your credit utilization under 7% helps boost your credit score as credit utilization accounts for 30% of our credit score.

• Pay down your debts. Carrying too much debt increases your debt-to-income ratio which can lower your credit score. To boost your credit score, pay down your debts.

• Avoid excessive borrowing. When you apply for a loan, a hard inquiry appears on your credit reports, lowering your score by 5-6 points. To boost your credit score, avoid excessive borrowing and only apply to loans you qualify for.

• Clean up your credit report. Regularly check your credit report and dispute any errors, fraudulent activities, or inaccuracies to major credit reporting agencies(Equifax, TransUnion, and Experian). You should also dispute removable negative items from your credit report.

• Become an authorized user of credit a credit card account. Another way to increase your credit score is to become an authorized user of a good credit card account.

You might also like: 13 common negative items on a credit report

Why is it important to check your credit score?

Checking your credit score is important as it affects your financial future. Your credit score represents your financial reliability to lenders, banks, and rental agencies. A low score can indicate financial instability, which may lead to higher interest rates on loans, difficulty securing a mortgage, or even trouble renting an apartment.

A high credit score can offer the potential for lower interest rates, easier loan approval, and greater financial freedom. You should regularly check your credit score to ensure an accurate and positive depiction of your financial health.

Checking your credit score can also help you spot discrepancies or fraudulent activities in your credit report. For example, if your credit score suddenly dropped, it might indicate an incorrect reporting in your credit reports.

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