Your credit score serves as a vital indicator of your financial well-being and creditworthiness. It plays a crucial role in shaping your financial identity, and therefore, it is essential to establish good credit early on. While a poor credit score can result in higher costs for major financial purchases, having a strong credit score can provide you with a competitive advantage when it comes to lending decisions. To better understand the significance of maintaining good credit, let’s explore some of the key benefits it offers.
Perks of Having a Good Credit Score:
1. Lower Interest Rates on Credit Cards
When you borrow money, interest becomes one of the costs you incur. The interest rate you are offered is often directly tied to your credit score. Having a good credit score significantly enhances your chances of qualifying for the best interest rates available. This translates into lower finance charges on credit card balances and loans. By paying less in interest, you can expedite debt repayment, freeing up more funds for other essential expenses.
2. Access to Better Loan Options
Experiencing the disappointment of being denied a loan or credit card is disheartening. Such rejections can be particularly burdensome if you require financing for necessary items like a mortgage or a car. Moreover, being denied other forms of credit, such as personal loans without salary slips, can hinder your ability to afford essential purchases or navigate through unexpected financial emergencies. However, a higher credit score significantly improves your approval odds. While lenders consider multiple factors in their decision-making process, your credit score holds significant weight.
3. Approval by Landlords
Even if you have no plans to purchase a home, maintaining a good credit score remains important. Surprisingly, your credit score is a factor that landlords take into consideration when reviewing rental applications. A solid credit score increases your likelihood of being approved as a tenant. Landlords find a history of on-time payment behaviour more appealing than a record marred by multiple delinquencies. If your credit score is less than stellar, you may face higher security deposits, shorter lease terms, or even outright denial of housing opportunities.
4. Insurance Benefits
Insurance companies also factor in your credit score when assessing your insurance risk. They utilize information from your credit report and insurance history to develop an insurance risk score. Insurers seek similar information to other lenders, including your history of on-time bill payments and outstanding debt. Individuals with lower credit scores often face higher insurance premiums. However, a good credit score can lead to lower insurance costs compared to applicants with lower credit scores, potentially resulting in significant savings.
5. Get a Cell Phone Without a Security Deposit
A poor credit score can present challenges when it comes to obtaining a cell phone contract. In some cases, service providers may not extend a contract to individuals with less-than-ideal credit. Instead, you might be limited to more expensive pay-as-you-go plans or be required to pay the full price for a phone upfront. On the other hand, individuals with good credit scores can avoid security deposits and may even benefit from discounted purchase prices on the latest phones by signing a contract.
6. Approval for Certain Jobs
Certain positions, particularly those involving finances or security clearances, necessitate a personal credit check. Employers conduct these checks to ensure candidates are capable of handling financial responsibilities or are not susceptible to bribery due to financial difficulties. Applicants with poor credit scores may find themselves ineligible for such positions. Therefore, maintaining a good credit score not only benefits your financial well-being but also expands your career opportunities.
7. Better Chances of Availing a Longer Loan Tenure
Longer loan tenures often result in lower equated monthly installments (EMIs), which can be beneficial for managing monthly finances. However, from the lender’s perspective, longer loan tenures carry a higher risk. A good credit score significantly improves your chances of obtaining approval for longer loan tenures, thereby reducing the burden of monthly EMIs.
8. Credit Card Rewards
A better credit score not only leads to higher credit limits but also unlocks access to a wider range of credit cards. Many of the best rewards cards require excellent credit for approval. These include travel rewards cards that allow you to finance your vacations fully and cash-back rewards cards that offer a percentage of your spending back as rewards.
Paying your bills on time and maintaining a low credit utilization ratio (the proportion of your balances compared to your total credit limits) are crucial steps toward achieving a good credit score. Given that credit influences numerous aspects of your life, it is beneficial to prioritize its maintenance. Regularly monitoring your credit can provide a comprehensive overview of your overall financial well-being, helping you make informed decisions about your financial future.