Having a good credit score is important because it’ll help you in receiving affordable rates and terms from lenders.
A credit score is what a lender uses to decide on whether you are eligible for the credit you require.
In addition to determining whether you’re eligible for credit, a credit score is also important in determining the terms at which you receive a loan.
Credit scores are used by banks, car dealers and credit card companies.
Having a good credit score is important because
Having a good credit score is important because of the following reasons:
- You’ll be able to get the best interest rates when you borrow money. The amount of interest charged on your credit is directly affected by the credit scores you have. The higher the credit score, the better the interest rates.
- You’ll stand a better chance of getting your loan approved. Having bad history of delinquencies may limit your chances of approval of the loan applied.
- Bad credit history will discourage you from applying for a loan. Even when you apply for one, the chances of getting the loan are lower due to the bad history.
- You’ll enjoy superior bargaining power. With a good credit score, you’re in a position to bargain for better interest rates. This allows you the freedom to shop around until you get the lender that’ll give you the best rates.
- If you have a poor score, however, only a few lenders will consider your credit application and none of them will be willing to budge on the terms of credit. You’ll miss out on cashback rewards, airline miles and other perks.
- Having a good credit score is important because it ensures that your borrowing limit is higher. Lenders will easily allow you to borrow more money because of a good credit score. They’ll have faith that you’ll pay back the money at the agreed time due to your history.
FICO credit score ranges
There are many popular types of credit scores, but the Fair Isaac Corporation (FICO) is the most well known. Many companies that offer credit use FICO to calculate the credit score of the borrower before lending them money.
Here are the credit score ranges:
A) The lowest credit scores are between 300 – 579. Approximately 11% of all the borrowers fall in this category. If their credit is approved, they will be required to pay a deposit or a fee.
B) The second group ranges between the scores of 580-669. 20% of the total borrowers fall in this category and they are the fair borrowers.
C) Attaining a FICO credit score of 670 is considered to be a good credit score. A majority of the borrower population fits here, having a 21% of the total borrower population. People in this category easily get credit and only a few of them end up being delinquents.
D) Attaining a score of 800 and above is what can be referred to as excellent or exceptional credit scores. Only 19% of all the borrowers fall in this category.
Advantages of having a good credit score
A good credit score is a very important thing to lenders. It allows them to know about your lending history. From there, they are able to determine if you are eligible for a loan and the terms at which they will give you the loan.
A good credit score is important in helping you stand a better chance of acquiring a loan with better interest rates and even allow you to have a higher borrowing limit.