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Why is credit important?

Why Is Credit Important?

The economies of countries all over the world are built on credit, allowing for transactions to spike economic growth. Banks provide you with a credit card or a loan, becoming your financial trustworthy friend, and you build that trust by paying their credit card bills on time. This relationship you create with your creditors by paying your bills or your debt in time establishes your creditworthiness, or your credit history. It is a reflection of your credit score which determines your interest rates on the account of your financial performance and responsibility to pay on time. Building a solid background of credit history is key in the path to your financial goals. Depending on your financial performance, you could save hundreds of dollars a month, and even hundreds of thousands dollars over the long run. Creditors provide the opportunity to buy something today and pay it at a later time.

Why Is Your Credit Score Important? 

A good credit score is necessary for negotiating the most beneficial deals, such as loans with lower interest rates, credit cards, insurance premiums, apartments and cell phone plans. Lenders look at your credit report when it comes to purchasing things you need but cannot afford to pay full in cash, such as buying a home, renting an apartment, refinancing your student loans, or buying a car. It is estimated that during a person’s lifetime, the cost of higher interest rates from bad credit can be well-over six figures. You need a developed understanding of your actions and how they affect your credit score, and building, defending, and utilizing your credit scores to reach your financial goals. As a financial tool, credit scores help you obtain lower or higher deposits for purchases, depending on your credit score. A good credit score is also useful when applying for a job--your potential employer might check your credit report to see if you are responsible and reliable as a future employee in their company. 

Credit Cards

While every credit card company has their own policies, they might check your credit score when you apply for a credit card. A good credit score may provide better options for you, such as being eligible for higher credit limits and lower annual percentage rate (APR). Credit also plays a role if you request a higher limit on an existing card, or if you are trying to upgrade to a new one. A credit card will benefit you in the short and long run.

Buying A Home

If you have poor credit, your interest rates on a mortgage loan are going to be higher, costing you greatly over the years. It takes time to earn an excellent good credit score, and it is difficult to find a mortgage lender if you do not have a FICO score. Say you want to buy a home and pay an interest rate over thirty years--with a good credit score your monthly costs, APR, and interest rates would be lower. However, if you have a poor credit score, you may pay double the amount on monthly payments, your APR would be twice as high, and your overall mortgage interest rates over thirty years may be even hundreds of thousands dollars more. A good credit score saves you money and will allow for purchasing a home more affordable. 

Renting An Apartment

Good credit will play an essential role when it comes to renting an apartment. Your credit score indicates if you are reliable and responsible for paying your rent on time. If you do not have a good credit score, you may be unlikely to secure the apartment, or you may have to pay higher deposits on utilities. Sometimes you could be asked to pay in advance a security deposit as a show of good faith, but if you have a good credit score, you could possibly get away with just paying the first month of rent as a deposit.

Student Refinancing Loans

It is beneficial to establish your credit history as a student. Once you build a good credit score, you have the opportunities to consolidate debt, renegotiate your student loans in getting better interest rates, creating more room to save your money, and have a savings budget. 

Applying For A Job

It is possible that your potential employer will check your credit report to see if you are a trustworthy future employee for their company. If you have poor credit, suspicion of your reliability could lead to your chances of getting a job look pretty slim. 

Conclusion

Credit has become an essential part of our financial lives, becoming a financial tool, reflection of your financial performance, and a necessity for financial goals and purchases. Its benefits take form through loans and better interest rates, aiding purchases from buying a home to a car, to cell phone and internet services, and even affecting employment.