What Do I Need a Good Credit Score For?
From an early stage of adulthood, we are led to believe that building and maintaining a strong credit score and profile is important for laying the groundwork for a successful adult life. Indeed, this is true for the majority of adults – although there are exceptions to every rule.
There certainly are people who may not need a strong credit score to live a life that they enjoy, since different people have different values. Not everyone has a need to borrow money – for example, not everyone has designs on owning a house or a car. Others may be fortunate enough to have a large cash position already – whether it be through the fruits of hard work and ingenuity or having been born within a wealthy family.
Not everyone even cares about having access to a credit card. However, these are the exceptions – not the rule. Most of us do want access to credit, and for a variety of reasons. And it follows that the better the credit score, the more credit that can be sought, and at more favorable terms. Let’s take a closer look now at why most of us want a good credit score.
Why Do I Need a Good Credit Score?
There are a number of reasons. For starters, loans are a necessary part of life for most people at some point. Let’s go back to the earlier example of buying a house, which is the largest investment that many people ever make.
Since very few people can afford to pay for a house in cash, it becomes a near certainty that most people will require a mortgage at some point in their lives. Even though the housing crisis is over a decade old, banks remain strict about lending and look for a strong track record of debt repayment that is reflected in a strong credit score.
Even renting isn’t as easy as it once was, and potential landlords almost always pull credit reports in an effort to ascertain the creditworthiness and reliability of a potential tenant. The same goes for buying or leasing a new car. Some people may be able to afford a new car with cash, but for most people, some sort of financing is often necessary.
Leasing car has become increasingly popular amid the low auto interest rate environment that has persisted for the better part of two decades, but you can certainly count on any potential auto financing involving a hard pull of your credit report and score.
Weaker credit scores bring the consequences of higher interest rates, more money down and a more expensive overall purchase price for the vehicle than someone with a stronger credit score will pay. Then there is the matter of auto insurance, and yes, insurance companies will check your score as well and offer lower premium rates to those with higher credit scores.
A Higher Credit Score Saves You Money
If you’re starting to think that having a strong credit score saves money and makes good economic sense, you’re right. Strong credit scores lead to lower interest rates in almost all lending scenarios – whether it be for a mortgage, auto loan, credit card, or personal installment loan.
The simple reality to remember is that lenders manage their risk by charging more to individuals with weaker credit profiles, knowing that a higher percentage of those with weaker credit scores will fall delinquent and possibly even default.
Higher interest rates make borrowing more expensive, regardless of the time frame. Not to mention that a weaker credit score invites greater scrutiny and makes securing a loan more difficult and time consuming – even at higher interest rates.
More Reasons to Have a Good Credit Score
It is now common for employers to run credit checks on prospective employees, particularly within the government and financial sectors. A low credit score speaks to a poor track record of repayment and a degree of irresponsibility that can negatively influence an employer’s ultimate hiring decision.
Meantime, it is important for entrepreneurs and small business owners who seek funding to have a strong credit score and profile. Many small business lenders require personal guarantees on loans and will refer to the small business owner’s personal credit score in making a lending decision.
And of course, let’s not forget that a strong credit score makes getting approved for a credit card or a credit line increase on an existing card easier. Finally, utility companies often make things easier on individuals with strong credit scores by waiving deposits when opening accounts.
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