In today’s world, you really can’t get much done without good credit. Whether you’re trying to get a credit card, a car loan, a house loan or even looking to rent a house, good credit makes all the difference in the world.
What is Good Credit?
Good credit is a classification of your credit score, and it means that you have a relatively high credit rating and are a safe credit risk. If you do not know your current credit score you can check it for free here.
Breaking it down further, a credit rating is a statistical score that is based on your credit history and gives lenders information about how reliable you are about paying off your debts.
Your credit score can range from 300 and 850 points. The higher your credit score is, the more trustworthy you are financially. Here is a breakup of how credit scores are classified according to FICO (Fair Isaac Corporation):
- Excellent/Exceptional Credit: 800+ and higher
- Very Good Credit: 740 to 799
- Good Credit: 670 to 799
- Fair Credit: 580 to 669
- Poor Credit: 579 or less
If you belong to the top three classifications, then you are considered to have good credit, and this will help you in ways you can’t imagine.
Factors that Affect Your Credit Score
Your credit history is basically a record of your debts and how responsibly you have handled them, and it is this that decides how high or low your credit score is. Here are the following details that are included in your credit history and impact your credit score:
- The number of credit accounts you have (how many lenders do you owe money to).
- The types of credit accounts you have (what kinds of debts do you owe).
- How much you owe in all these accounts put together.
- The amount of available credit you have used.
- If your dues are paid on time
- How many credit inquiries have there been against you in recent times (these time limits vary from lender to lender).
You credit history will also contain information about whether you have any liens, collections, bankruptcies or judgements against your name.
The Importance of a Long Credit History
When you go to buy or apply for credit, lenders look at your credit history. Not just your recent activity, but your entire credit history. Consideration is given to how long your credit history is because it gives lenders a clearer picture of your repayment patterns and how regularly you have been making your payments.
If you do not have a credit history, like college students, then getting approvals for financing or leases can be a challenge.
How Does Good Credit Impact You When You Purchase or Seek Credit?
Here is how good credit can help you when you buy or apply for credit:
- Lower Interest Rates on Loans and Cards
The higher your credit rating, the lower the interest rate you are charged when you apply for a loan or get a credit card. This is because the interest rate charged on the money you borrow is directly linked with your credit score.
You will also pay lower finance charges on your balances.
- Higher Chances for Approvals
While having good credit does not guarantee your loan or credit card application being approved, it does substantially improve your chances. Lenders also consider other factors such as your total debt amount and your income before approving your application for another card or loan.
- More Power to Negotiate
If you have good credit, you have the power to negotiate a better deal when it comes to interest rates. You will also get offers from multiple lenders, which will give you have more bargaining power and the ability to pick and choose which lender you wish to opt for.
- Higher Credit Limits
Banks look at your income as well as credit history when approving a loan. A good credit history ensures that a lender will be more inclined to not just approve your loan or credit card application, but also give you a higher credit limit.
- Discount on a Home Loan
If you are planning to take out a home loan, then your good credit score may help you negotiate a lower interest rate. Added to that, you may also be able to avoid certain fees. These discounts are specific to a home loan and good credit will help you get them.
- Get a Peer-to-Peer Loan
This new type of loan’s interest rate is dependent on your credit score. So, if your credit rating is really good, you can actually pay as little as 4% for an unsecured loan.
- Renting Becomes Easier
Today, most landlords use credit scores before they lease their property to tenants. People with bad credit, especially if it is due to outstanding rent balances or, even worse, because of an eviction, can find it almost impossible to rent a place. With good credit, on the other hand, you can actually pick and choose the place you want.
- Better Rates for Insurance
Lenders and landlords are not the only ones who look at your credit scores. Insurance companies also factor in your credit history when you file for insurance. This is because insurance companies claim that people with bad credit usually file more claims than those with good credit. Thus, such people get charged higher insurance premiums. Conversely, if you have good credit, you will be charged a lower premium on your insurance.
- No Security Deposits on Utilities
Security deposits on utilities can be expensive, going as high as $200. This can be an added expense if you are moving to a new place. When you have a good credit score, you will not need to pay a security deposit to set up your utilities.
Having good credit means that you end up saving a lot of money in interest, fees, security deposits and so much more. So, it really is a good idea to ensure that your credit score is always good. What is your credit score?