Among the several things that affect your financial health, credit score has a great significance. This is because; lenders use it to determine your economic welfare ranging from whether you qualify for loans, interest rates, to credit cards rewards. However, managing a credit score rating of above 700 implies that you have worked extra-harder in improving it, therefore, guaranteeing you handsome rewards for financial diligence. Below are some of the effects of higher credit score to your financial health.
Low-interest rates on loans
Having higher interest rates privileges you when it comes to applying for low-interest rates loans. The interest rates are the charges you pay for borrowing money (commonly attached to your credit score,) implying that, the less the interest rates, the lower the debt. This also applies to credit cards since consumers with excellent credit scores qualify for cards with lower interest rates.
Offers you a better chance for loan or credit card approval
Although lenders consider factors such as your debt and income for loan approval, higher credit score have a great significance on debt approval. This also gives one some financial confidence where consumers find it easy to borrow, contrary to those holding poor credit score since they fear that their applications may be turned down.
Offers one a better negotiating power
Holding an excellent credit score offers one a bargaining power such that you can negotiate for loans and credit card at improved interest rates. Secondly, your status allows you to approach creditors providing products and services based on credit score ratings. On the contrary, consumers’ holding poor credit score qualify for high-interest loans and credit cards (high-interest rates acts as loan security), therefore, they have no freedom and confidence to face lenders offering low-interest rates deals.
Qualify for better auto insurance rates
Surprisingly, car insurance companies use your credit score to determine monthly premiums where individuals with good credit score qualify for lower premiums while those with lousy credit score qualify for higher premiums. The auto-insurers argue that such people are irresponsible which may lead to them filing more damage claims.
Offers better chances for beyond limits loans
Although individuals with poor credit score still get approval for loans, the lenders are willing to loan individuals with good credit score even beyond the limits since they have demonstrated their ability to service their debts on time.
Fast approval for rentals
Nowadays, landlords are also using the credit score to screen their potential tenants where individuals with bad credit score hold lower chances of qualifying for a premise. The worst is also expected if your status emerged from late payments, not paying or eviction from the previous premises. A higher credit score may even save you time and resources spent on finding a landlord who may overlook the factor.
Besides that, several landlords may accept accommodating you without the security deposit especially if an unavoidable circumstance (such as flooding, earthquakes among others) caused your relocation. Sometimes the deposits can go up to $200, becoming hard to settle if you lost everything. Your excellent credit score may convince the property owner that you will repay the loan once you get established. It may also act as security that you are legit assuring them of being a good custodian of the utility.
Entrusted with a cell-phone contract without security deposits
The cell-phone service providers are willing to offer their clients with deposit-free deals in exchange for higher credit score status. On signing the latest phones contract, individuals with excellent credit score can skip the security deposit and get considerable discounts in return. On the contrary, consumers with bad credit score are only allowed to use expensive pay-as-you-go methods for the security of the company.
In some occasions, a high credit score doesn’t guarantee one an excellent financial health since you can hold an excellent credit score and still struggle with debts or make poor decisions in the long run. Below are some of the scenarios where a consumer with a high credit score is not guaranteed financial health.
Having a lower credit utilization but keeps on applying for more loans
The most significant factor that determines your FICO score is your credit accounts (account for 30 %) whereby, holding a utilization rate beyond 35% demonstrates financial instability. One of the hacks to improving your utilization rate (calculated by dividing your total debt with the overall credit limit) is increasing the amount of credit attached to your name. However, the strategy may fail since the potential to apply for more debts may tempt you to overspend as you have more debts to utilize. In addition to that, it may kill your aggressiveness to settle the amount owed and concentrate on borrowing more. This is a common experience to credit card users leading to some, applying for more cards just because they qualify.
Making minimum monthly payments
Making the entitled monthly payments on time is one of the recommended ways to maintaining your credit score. However, making minimum payments subjects one to carrying forward some debts which may cause them to swim in deep debt-holes that may be difficult to get out from. This is because some lenders set up to 2% minimum payments of the total balance. On the other hand, paying the minimum amount increases your credit utilization rate.
Taking advantage of your creditworthiness to borrow exceedingly
Unlike consumers with lower credit score rating, lenders allow individuals with higher scores to borrow beyond the limits. However, some borrowers may take advantage of the offer to fulfil their dreams. For instance, a car-loan borrower may opt for a Mercedes Benz (for publicity) just because they qualify for it. Unfortunately, this may hinder their cash flow and reduce or slash their emergency savings to the extent of minimizing their capability to service their retirement plan.
Finally, holding an excellent credit score has a lot of benefits attached. Anyone holding it has the right to brag and improve if it transformed from a bad one since it offers one a financial freedom and confidence. Consumers with a poor credit score should also take a step of improving their status by reading on the ways to boost your credit score.