Among the several things that affect your financial health, a credit score has great significance. This is because; lenders use it to determine your economic welfare ranging from whether you qualify for loans, interest rates to credit card rewards. However, managing a credit score 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 a higher credit score on your financial health.
The interest rates are the charges you pay for borrowing money. This also applies to credit cards since consumers with excellent credit scores qualify for cards with lower interest rates.
If you want to get approved on a loan, you have to prove a high income and good credit. This also gives one some financial confidence where consumers find it easy to borrow, contrary to those holding poor credit since they fear that their applications may be turned down.
Holding an excellent credit score offers one a bargaining power such that you can negotiate for loans and credit cards 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 who hold low credit scores typically qualify for high-interest loans and credit cards (high-interest rates act as loan security). Therefore, they have no freedom and confidence to face lenders offering low-interest rates deals.
Surprisingly, car insurance companies use your credit score to determine monthly premiums. Individuals with good credit scores qualify for lower premiums, while those with lousy credit scores qualify for higher premiums. The auto-insurers argue that such people are irresponsible, leading to them filing more damage claims.
Although individuals with poor credit still get approval for loans, the lenders are willing to loan individuals with good credit even beyond the limits since they have demonstrated their ability to service their debts on time.
Nowadays, landlords are also using the credit score to screen their potential tenants, where individuals with bad credit scores 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 save you time and resources spent 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.
The cell phone providers are willing to offer their clients deposit-free deals for higher credit score status. Individuals with excellent credit can skip the security deposit and get considerable return discounts on signing the latest phone contract. On the contrary, consumers with bad credit are only allowed to use expensive pay-as-you-go methods for the company’s security.
In some cases, a high credit score doesn’t guarantee 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 scenarios where a consumer with a high credit score is not guaranteed financial health.
The most significant factor determining 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 by the overall credit limit) increases 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 for credit card users, leading to more cards just because they qualify.
Making the entitled monthly payments on time is one of the recommended ways to maintaining your credit score. Some lenders set up 2% minimum payments of the total balance. 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. On the other hand, paying the minimum amount increases your credit utilization rate.