When it comes to getting a car loan or a mortgage, banks look at a person’s credit history before extending the needed funds. The FICO credit scores that banks tend to look into range from 300 to 850. The higher a person’s credit score, the more likely they are to get a loan. While the ability to get a loan is one reason to work on securing a good credit score, there are many others.
The ability to get a loan is huge in a crisis. If you have an emergency with no cash on hand, a loan can help you weather the storm. A high credit score will make it more likely that you’ll be able to access a loan when you need it. The inability to get a loan will limit the amount of financial flexibility you’ll have in a pinch.
Interest rates are tied to the perceived risk a borrower represents. A lower credit score will generally lead to a higher interest rate. In turn, the higher rate will lead to a more expensive loan. Higher credit scores can greatly lower the cost of borrowing, and you’ll want to ensure that you have a high score.
Banks are not the only business that will look at a person’s credit score. Many landlords will pull a credit report to see if a person is likely to pay his rent every month. Additionally, car insurance companies and utility companies will sometimes pull a credit report. Those with higher scores are more likely to get lower premiums. They might also be able to score a lower security deposit. In both instances, having a good credit history will lead to savings. As Ben Franklin once said, a penny saved is a penny earned.
If you currently have a credit score that’s on the lower end of the scale, you’ll want to work to improve it. Promptly paying at least the minimum amount due is the single best way to bump up your credit score. Using a lower percentage of your revolving credit lines can also help. Additionally, maintaining multiple lines of credit can lead to a positive bump to your credit scores. Having a good credit record can really pay off. Therefore, you’ll want to do all you can to keep it as clean as possible.