Credit scores are an ever more important part of modern life. And while it is perfectly possible for you to live a comfortable life while having a bad credit score, maintaining a good credit score comes with a wide range of benefits and advantages. This guide will cover some of them.
Before we go over these benefits, it’s important to note that your credit score is not outside of your control. Many tools and service providers can help you manage and improve your credit score. For more information, check this Sky Blue vs Lexington Law review, which covers two big players in the credit repair industry.
Put simply, credit scores are a numerical representation of how likely you are to pay your bills on time. This number is used to calculate how much of a risk you pose to a bank or a financial institution, which in turn determines what kind of interest rates they are willing to offer you on a variety of loans and financial products.
Interest rates are how banks mitigate the risk of loaning to individuals who are more likely to be unable to pay back their bills. This means that if you maintain a good credit score, banks will treat you like a low-risk client, and will in turn offer you much better interest rates. Not just in direct loans, but also on other financial products, such as mortgages and credit cards.
Your credit score plays a big role in determining how much money financial institutions are willing to loan you at any given time. This means that if you have a low credit score, you might be unable to get a mortgage on an expensive home, even if you are willing to accept very high-interest rates. The bank just won’t be willing to risk loaning that much money to you.
One way to get big loans with a bad credit score is to put down a larger deposit upfront or offer some assets as collateral to the loan. This takes us to the next benefit on this list.
Everything from car purchases to mortgages and even phone contracts require buyers to put down a deposit upfront. This is also a risk management tool; asking for a part of the payment upfront means that if you eventually default on the debt, the bank will lose less money. Of course, the lower your credit score, the larger the deposit must be to secure funding from a financial institution.
Certain job positions are only available to those who go through a background check. This isn’t just something that happens in government jobs either; many big companies like to make sure their managers and executives have a clean history before hiring them. And credit scores are one of the factors that are looked at during these background checks. A bad credit score can raise questions with your future employers, and it may even prevent you from being hired entirely.
Mortgage applications and lease negotiations can also be harmed by a low credit score.