A credit score is a number that ranges between 300 and 850. It is used by financial institutions to check on a customer’s creditworthiness. Most lending institutions use Experian, Equifax and TransUnion to check the credibility of a customer. Lenders such as LoanPig.co.uk use the credit score to evaluate the probability that the borrower will pay back. The higher the score is, the lower the risk a lender is likely to experience, whereas the lower the score, the higher the significance that the borrower is a potential defaulter. Good credit will save you money and put you in the right financial place as you’re able to pay back loans in a short period due to the low-interest rates.
There are factors you consider in calculating a credit score. They include but are not limited to the length of credit history, customer’s total debt, repayment history, and the types of loans. They all contribute a certain percentage to the credit score. They are used in a variety of ways; therefore, it is important to always make sure it has good standing. For you to consider creating a good score, it is important to know the benefits that come with it.
These are the main benefits of a good credit score.
1. Access to low-interest rates on credit cards and loans
Every lender expects to receive payment in the form of interest for lending you money. With a good credit score, the lender can offer you a loan with the lowest interest rates as you pose a lower risk of default. This way, you can pay back your loan quickly, as this will reduce the amount you are supposed to pay back. For credit cards, you will pay lower finance charges in respect of a good credit score.
2. More negotiating power
With a high credit score, it gives you leverage and bargaining power to negotiate for lower interest rates. Most companies are willing to approve your loan when your score is high. If you have a low one, lenders are more likely to give you a loan at high-interest rates to cover them on the financial risk involved.
3. Better chance for credit card and loan approval
A good credit score gives you the confidence to apply for a credit card or a payday loan as you are in a better position for approval. However, it is not a guarantee that your loan will be approved as there are still other factors that are considered, such as your levels of debt and the amount of income. The credit score just gives you that boost to be considered for a loan.
4. Improves car insurance rates
An insurance company develops an insurance risk score from information in your credit score report and insurance history. This score allows insurance companies to decide if they will insure your car or not. Those with a bad score usually pay high insurance premiums for their vehicles while those with a good score pay lower premiums, saving you a lot of money.
5. Opportunity for higher limits
Lenders are willing to lend you a lot of money without hesitation, as you have demonstrated with the excellent credit score that you pay loans on time. It increases your borrowing capacity with a high margin. With a low one, your loan will be approved but with a limitation of the amount. In other cases you may find that you are barred from taking a loan from any lending institutions, until you regularize the existing loans.
6. Agreement for rental houses and apartments
Landlords are using the tenant screening process that assists them to check if a customer has a good credit score or not. Having rent arrears or previous eviction notice can make your score fall low, and that will make a landlord chose not to enter into a rental agreement with you. Try and maintain a good score as this will save you time when house hunting by allowing the landlord to enter into a rental agreement with confidence.
7. Acquisition of a cell phone with no security
With a good credit score, you can buy yourself a cell phone from the stores on credit. You will need to sign a contract without paying a security deposit for it. They also give them discounted prices for people with a high one, which they usually don’t do for those with a low credit score.
8. No security deposits on utilities.
A good credit score on your utility services will save you money as you will not be required to pay the utility deposit that is mainly paid when you’re relocating from one house to another. It offers such convenience as moving can be expensive, especially when it is unplanned.
Your credit rating may not be where you want it to be. For you to improve it:
- Ensure to pay your bills and utility on time.
- Keep balances low on credit cards.
- Don’t close unused credit cards.
- Open new credit accounts only when it is necessary.
- Work with credit repair companies to improve your score.
- Self -caution on ignoring due bills
- Keep lines of communication open with the lender in case of financial challenges.
- Not exceeding the maximum credit limit
- Awareness of the type of credit you use
- Pay your debt on loans before the due date.
In today’s world, the importance of a good credit score cannot be undermined. With the above benefits of a good credit score, you are likely to save a lot of money. A good one will land you many opportunities, so it is your responsibility as a borrower to make sure it remains strong. It takes a lot of good practice, commitment, and discipline to maintain a high credit score.
It is also important to start saving as this will help in cutting back on unnecessary spending and exceeding your credit limits.