Like most young professionals, you’ve probably thought about applying for your very first credit card or loan. If you haven’t done your research yet, you might assume that having a stable source of income and completing all the requirements are enough basis for your credit card or loan to be approved. But the truth is, you might still find your application being rejected.
Why is this so, you may ask? It’s most likely your poor credit score getting in the way. But before jumping into the importance of having good credit, let’s quickly go over the definition of credit score.
To put it simply, credit score is a three-digit number that predicts your likelihood to pay off a loan. It gives lenders an idea of your creditworthiness. Thus, making it one of the major, if not the most important, factors influencing the approval of your credit card or loan application.
- Easier approval of new loans and credit
A higher credit score shows lenders that you have good borrowing habits—labelling you as a low-risk borrower. This is a good thing since it makes you more trustworthy in the eyes of lenders. Thus, increasing your chances of being approved for new credit.
- Higher credit limits or loan amounts with lower interest rates
A good credit score proves your ability to pay back your credit on time. For this reason, lenders are more willing to increase your credit limit and let you borrow a larger amount of money. Since you’ve proven to be creditworthy, you will also qualify for lower interest rates.
- Discounted insurance rates
You’re much more likely to be offered more affordable premiums for your car or life insurance if your credit is good. Having a bad credit score, on the other hand, may result to higher premiums. We don’t want that, of course.
- Negotiating power
Did you know you that having a good credit score can get you better deals? You can actually use it to your advantage when haggling! Utilize your credit score to prove that you’re a reliable borrower.
- Better chances of employment
When conducting background checks, some employers take look at one’s credit score and credit report. Most of them consider good credit appealing, as it might reflect your trustworthiness and responsibility as an employee. Meanwhile, a spotty repayment history, many open and delinquent accounts, and high monthly payments can be a turn off.
Now that you know its benefits, it’s time for you to work on building good credit! Check out our article on How to Build Good Credit to find out how.
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