Your credit score is basically your financial reputation in the form of a number. It can range from 300 to 850, and the higher the value, the better it is. It allows banks, insurers, etc. to assess your capability to handle financial responsibilities. According to Forbes, it’s composed of five categories: money owed, payment history, length of credit history, net credit, and credit mix.
Here are five reasons you should improve your credit score:
Whether it be a housing or signature loan you need to take out, it will always be easier to get approved when you have a good credit score. It’s one of the basic requirements moneylenders look for. Because it reflects your financial history, they use it as a metric to determine whether you can pay for a loan. Beyond approval, it also affects the mortgage or annual percentage rate. Based on estimates, you can save almost $100,000 in mortgage rates if you have a score in the 700s rather than the low 600s.
Like loans, credit cards are approved depending on your credit score as well. Plus, your credit score also determines the annual percentage rate for your account. Interestingly, it all depends on your ability to pay on time. You can avoid the hefty interest if you pay on time every month. Your payments can also affect your credit score. If you have a payment that’s a month overdue, it can lower your credit score by as much as 100 points.
On the other hand, you can get a score in the mid-700s in just three months by paying on time. You don’t even have to make big purchases. For example, instead of using cash to pay for essentials such as gas and groceries, use your credit card. Set aside the money and pay when you receive your bill. You’ll build a nice credit score without spending any more money than you would normally.
Some landlords actually perform credit checks before they let you rent their apartment. This could be especially problematic in cities like New York, where rental fees are too high and spacious apartments are too few. The good news is that you don’t need to have particularly high scores to be able to rent a place. According to housing counselor Sherry Tetreault, if you can show that you have decent financial capabilities within the last two years, you can get approved. You can also boost your chances if you pay a bigger deposit than others.
It’s pretty uncommon, but companies may perform a financial check before they hire you. According to a 2018 report, 16% of employers conducted a financial or credit search during the hiring stage. Such checks can be used to confirm your identity and determine how responsible you are. But companies don’t actually see your credit score; they can only access your credit history.
Avoid being saddled with a low credit score that can follow you for the rest of your life. Make smart purchases, pay on time, and watch your credit score rise.