Your credit record is not only an indicator of your financial health, but it is used by lenders when determining whether to grant you the credit you may have applied for.
However, it is often overlooked and neglected due to a lack of understanding. Here are a few points to help you understand why maintaining a good credit record is beneficial to you.
1. It improves your chances of qualifying for credit: Your credit record is one of the first pieces of information reviewed by lenders when you are applying for a loan. This tells them how many credit sources you have to your name, and how regular your repayments are.
They are then able to make an informed decision about whether to grant you the loan. If your credit record reflects a good score the likelihood that you will be approved is much higher because lenders feel that you can be trusted to repay the debt as agreed upon.
2. You may receive a cheaper interest rate: Once lenders see that you have been able to manage a good credit score, they are more inclined to offer you a lower interest rate. This means that you will be paying less on monthly repayments and will have more disposable income available.
The interest rate is basically the cost of the loan and therefore, the lower your credit score, the more you are considered high risk and subsequently the more expensive the interest rate offered.
3. Potential employers may access it: Employers are increasingly asking for access into the credit records of prospective employees. This is common practice for jobs within the finance and government industries.
In these instances, a poor credit score may prevent you from landing the job, especially in the financial services industry. This is because employers may deem you financially irresponsible and therefore unable to provide consumers or clients with sound financial advice.
4. It gives you access to lower insurance premiums: A good credit score does not only give you access to a decent interest rate, but it also allows you to negotiate for lower insurance installments.
This is because you are deemed more financially sound and will consequently be given the option to pay less.
5. It allows you to start your own business: Few people have the capital to start their own business which is why they often rely on business loans. If your credit score is good this may be a possibility. If not, it can prevent you from being able to live your dream.
Business loans, like any other type of credit, require the applicant to have a solid credit record which indicates their paying ability, history, and other responsibilities.
6. Gives you easier access to a car and a home: Acquiring your own home and car is something that most adults aspire towards. But without a good credit score, this may remain a pipeline dream.
A home or vehicle loan is known as a secured loan and this requires a sound credit profile and score because this debt is often more expensive than other credit types.
For this reason, your credit score becomes an important part of the decision-making process for lenders and can make or break your application.
Your credit score is directly linked to how well you are managing your finances. The better your score the more financial opportunities you will have access to, and the more you will save.
To further understand how to maintain a good credit score, click here.