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5 Reasons Why a Good Credit Score is Important

Young couple approved for their first mortgage.I often hear people say that they have never looked at their credit score and do not understand what the big deal is. Perhaps they are at a point in their life where they haven’t begun using credit cards, or haven’t considered buying a house. I’ve also heard people say that they figure they will never need credit cards or a loan.

So why worry about your credit score?

No one can predict the future. You never know when your circumstances may change and you may in fact need a good credit score. Here are 5 reasons why a good credit score is important, and why you should care about whether or not you have a good score.

Qualify for a Better Mortgage

It is a known fact that people with good to excellent credit scores have a much easier time obtaining a mortgage then those with poor credit scores.

When you have a high credit score mortgage brokers will happily compete for your business by offering you as low of an interest rate as possible. They are happy to do business with you because you are a low risk client.  When you have a poor credit score you will have to hunt for a mortgage broker, and many times, once you find one that is willing to work with you, your interest rate will be higher as well.

Qualify For A Line Of Credit

At some point in your life you may need a line of credit. People use these to fund home renovations, and other projects, instead of using a credit card. The main reason that people choose to use a line of credit is because the interest rates are usually quite low. In fact these days they average around 5 to 7%.

Having said that, if you have a poor credit score you may not qualify for a line of credit, or if you do, you may end up with a much higher interest rate.

Qualify for a Car Loan

If you can afford to pay cash for a new car, great. But if you can’t and you need to buy a new car, you will need a car loan. Whether you apply for a car loan at the bank or through the dealership, the first thing they will do is check your credit score. That, combined with your employment history, will determine if you will qualify for the car loan, and if so what the terms and interest rate will be.

And you guessed it, the better your score the better your rate and terms will be. If you have a poor score you will either be turned down or be offered a loan with a rate as high as 25 to 30%, which of course you want to stay away from.

Ability to Rent a House or Apartment

Every situation is different, but quite often when you fill out an application to rent a house or an apartment you will be asked for permission to check your credit score. Again, they want to see if you are a high risk, or if they can count on you to make your rent payments on time.

Even if it isn’t true of you, the unfortunate part of having a low credit score is that people draw the conclusion that you are irresponsible when it comes to your personal finances. And they will be concerned that if they allow you to rent their place you may not be the best tenant.

Qualify For Credit Cards

At some point in your life you may want to travel, rent a car, and so on, and a credit card would make paying for those things so much easier. But there are many different types of credit cards and the type you would qualify for would be based on how high your credit score is.

People with a high credit score will be offered lower interest rate cards with better benefits. People with a poor credit score will either be denied or will be offered high interest rate cards, and possibly even be charged additional fees. As well, the better your score is the higher your spending limit on your credit card will be.

Conclusion

As you plan your future, keep the above points in mind, and do your best to make sure you maintain the best credit score possible. That way you will never have to worry about it if the day comes that you need to borrow some money.

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