Credit scores are the universal system that lenders use as part of their equation to evaluate the individuals they’re lending money to. Someone with a low credit score (630 or less) is viewed as a bad investment in the eyes of a lender. Or, for the heightened risk the lender takes with someone who has a low credit score, they’ll offer less than favorable terms or interest rates. There are several reasons having a healthy credit score is important, this article will explore 5 different reasons you’ll want a quality score when the time comes!
5 Reasons your Credit Score is Important
1. Buying a Home
Most everyone has the goal to eventually be a homeowner someday. Or if you’re already a homeowner, a goal to own a vacation home or rental property. In all cases, it’s extremely helpful to have a high credit score when applying for large loans such as a mortgage. Borrowers who have excellent credit scores can expect to receive access to large loans, better interest rates, and other favorable terms.
2. Renting an Apartment
Some landlords, depending on the rental market will look at your credit score to determine the amount they’ll require as a deposit. If it’s a competitive market for renter’s, landlords want people who will be on time with their payments every month. They can afford to be selective to who they’re renting to and will choose renters with higher credit scores.
3. Buying or Leasing a Car
Your credit score will be used to determine the payment schedule, interest rate, and loan amount, which in turn determines what type of car you may be eligible to buy.
4. Starting a business
There are a variety of ways to fund a startup business, however, a common route is through a bank. The bank will use your credit rating as part of the equation in determining whether to finance your venture. Again, the terms of the loan can be more favorable for you if you show up with a quality credit score.
5. Other users of your credit score
Cell phone providers, utility companies, and insurance providers.
In conclusion, starting to establish credit early will only benefit you as long as you’re responsible for making payments on time, making minimum monthly payments, and limiting the number of debt obligations. You’re entitled to a free credit report once a year. If you’d like the check your current credit score we’ve listed two free sites below.
Keep these considerations in mind when making decisions that could affect your credit. Building good credit can take time, but it’s definitely better than having to fix it later!
Levi Sanchez is a CERTIFIED FINANCIAL PLANNER™, BEHAVIORAL FINANCIAL ADVISOR™ and Founder of Millennial Wealth, a fee-only financial planning firm for young professionals and tech industry employees. Levi’s been quoted in the New York Times, Business Insider, Forbes, and is a frequent contributor to Investopedia. He is an avid sports fan, personal finance and investing geek, and enjoys a great TV show or movie. His mission is to help educate his generation about better money habits and provide financial planning services to those who want to start planning for their future today!