By Jennifer Calonia, Go Banking Rates
The phrase “credit score” is often thrown around as a big, ominous number that can make or break your financial reputation. This perception is somewhat true, in that this three-digit number has the power to influence a lot of your purchasing decisions and abilities. But the key difference between this perception and the truth lies in the idea of credit scores and credit reports being an intimidating and scary concept.
Your credit health is important to your financial well-being, but not everyone keeps track of their scores.
“Many people are scared to go to the dentist or to the doctor, but when it comes to checking your credit — knowledge is power,” said Julie Springer, vice president at TransUnion. “Your credit report and credit score play crucial roles in achieving your financial goals. With a healthy score and responsible past credit behavior, lenders may be more likely to offer you lower interest rates on mortgages, auto loans, other loans and credit cards.”
Playing an active role in your own credit makes a big difference when it comes to saving money in the long term. However, if you’re still wary about diving into the details of your credit, here are six good reasons to monitor your credit score.
1. Borrowing on credit might depend on your score
Are you interested in pursuing your passion by starting a new business? If you require seed money to get your start-up going, you’ll likely need the assistance of a lender in the form of a business loan. Even for more standard purchases, like an auto loan or a mortgage, a potential lender will generally look into your credit history.
Lenders and creditors use your credit score to gauge the risk they’ll assume to lend you money. A poor score could result in a declined loan application and a delay to the personal and financial goals you’ve set for yourself.
2. Good credit helps lower loan interest rates
Not only does your credit score affect whether you’ll be approved for a loan or new line of credit, it might also heavily determine what interest rate you’ll be offered.
Creditors who lend money to borrowers with subprime credit assume higher risk, because the applicants are more likely to default on their financial obligations than borrowers with exceptional credit scores. As a result, creditors try to offset this risk by charging borrowers a higher interest rate, so that they’re guaranteed more money in return.
3. Poor credit habits lead to higher interest rates
Your credit score can dramatically influence your ability to get new lines of credit, but letting your credit score slip can also do damage to your existing credit account. Late payments that are 60 days past due might cause creditors to pass on news of your non-payment to credit reporting bureaus.
As a result of this ding on your credit report and credit score, existing creditors might increase your interest rate to a much higher percentage, known as the default rate.
Read the full article by Jennifer Calonia from Go Banking Rates.
