How Important Are Credit Scores?
Whether you are a business owner or you want to buy a new car, if you have bad credit, you will be in for a rude awakening. While your friends and family see you for who you are, companies only know you by your credit score, and if it is low, you might have to pay more or be turned down for a loan altogether. Let’s talk about credit scores and why they are so important.
The title above asks a question, but the answer should be obvious. Credit scores are very important, and the higher, the better. Whether you are a business owner or you want to buy a new car, if you have bad credit, you will be in for a rude awakening.
While your friends and family see you for who you are, companies only know you by your credit score, and if it is low, you might have to pay more or be turned down for a loan altogether. Let’s talk about credit scores and why they are so important.
Why Credit Scores Are Important
A good credit score is crucial to your financial lifestyle for a couple of reasons. The first is that a bad credit score usually means that you have a history of poor financial management. The more in debt you get and the further behind you are on your payments, the less comfortable businesses are going to be giving you a new loan. Think about it: why would a lender want to give you a mortgage for hundreds of thousands of dollars when it is right there on your report that you can’t pay your credit card on time? Most lenders consider a good credit score to be above 670, and a score below 580 is considered poor.
Secondly, since companies don’t know you and your habits in real life; they use your credit score to essentially gauge your character. Auto companies and insurance providers can see a bad credit score and deny you access to insurance because they don’t think you are worth the risk. Some businesses even pull your credit score when you apply for a job, especially if you work as a manager or in the financial sector. If you are managing finances at a company, they first want to know that you can also manage your personal finances.
Because credit scores are so important, you should regularly check your credit report. You may think that you are on top of your bills, but there could be an old card you forgot about, or even worse, a mistake on your report for a loan you never took out. If you have questions or issues with your credit report, then you need to dispute the claim immediately.
Benefits of Good Credit
A good credit score opens you up to a world of possibilities. If you are looking to take out a new credit card, buy a house, rent an apartment, or take on any other large purchase, and you have a good credit score, then you are usually as good as approved. Keep in mind that the lender will also consider your income and past debts, but a good credit score puts you on the right path.
Another great perk of good credit is that since companies see you as more trustworthy, you may be able to get new phones and sign up for utilities without having to pay a costly security deposit. You are also likely to be approved for higher loan amounts and credit card limits because the bank knows that the potential to be paid back is almost certain. Landlords will also be more likely to rent to you as they believe you will reduce their stress by paying the rent on time.
As a business owner, having a good credit rating can make the difference between a successful enterprise and a failure to launch. Unless you have the capital readily available, you will likely need to secure funding with a personal or business loan, and if you have good credit, you exponentially improve your chances of securing one. On top of that, you may also be provided with a better interest rate since your report shows that you are a more dependable recipient.
Issues with Bad Credit
Unless you purchase everything with cash, a low credit score can lead to a world of problems, and it can be tough to crawl your way out of the hole. With bad credit, the chances that you will be approved for a loan are slim to none as creditors will see that you have issues paying back the money that you owe.
If you can convince them to give you a loan or you are approved for a special program, then it may come with specific terms that may not work within your budget. For instance, a loan could come with a higher interest rate that is miles above the standard offering just because the company wants to protect its interests. If you are approved to rent an apartment with a bad credit score, then you could be faced with a higher security deposit than usual, so the landlord gets something back if you don’t pay your rent.
The years of effort and extra money spent is why it is better to maintain good credit than have to repair destroyed credit.
When attempting to repair your bad credit score, start by paying down your debt. If you have multiple accounts owed, then begin by paying off the smaller amounts or consolidate your debts if possible. If you have one large debt, then create a budget and put a larger portion of your leftover money towards it. Avoid taking out more credit during this time, as that will result in hard credit inquiries, which will also reduce your score. Another option for working towards a better score is getting a cosigner with good credit to help you with a big purchase and pay it back over time.
Credit scores are very important. Your score can be the difference between owning the things you desire and missing out on the things you need. Work at maintaining your credit score and prevent unnecessary headaches.