Credit scores are no joke. It can make or break a person’s life. Credit scores are a way for loaning companies to determine whether a person can be trusted to take out a loan. Debts have been part of the majority of civilization — dating back to the first days of slavery. The concept of debt, per se, is only recorded in the past 5,000 years. Early credit reporting methods can be subjective, as biases regarding race and gender were always considered.
In medieval times, the only way to determine whether you are trustworthy enough to pay back a loan is the number of assets for collateral you have. Modern credit scoring was invented in the 1950s during the post-World War. Engineer Bill Fair and Mathematician Earl Isaac wanted to create a standardized system wherein people can be graded impartially beyond their physical appearances.
Credit scoring under Fair and Isaac’s method has been the basis of all modern credit scoring used in most markets and economies. It is mostly based on the entire amount of money you owe, your payment history, the time you carried your debt, your debt and bank portfolio, and your recent credit activity.
It is sometimes not enough that you don’t have any debt. Your recent experience concerning handling your debt plays a big role in your overall credit score. Out of the maximum score of 850, a credit score of above 700 is considered above average. Generally, only the older generations have great credit scores. Most college graduates of this century come out of the gate buried in debt.
Building wealth without borrowing is hard. If you forever rely on your salary to lift yourself out of poverty, then you will never make it. On the other hand, some people live to pay the interest out of their debt. To further progress in life, you should think about doing the things to improve your credit score. Why should you improve your credit score?
Lower Interest Rates
A better credit score means that you will get lower interest rates on loans from banks. A higher credit score means that you are trustworthy enough to make your credit payments on time. Credit agencies take on greater risk when they let someone with a low credit score borrow from them. The chance of these people delaying payments or, even worse, not paying at all is higher than usual. Having a great credit score will enable you to be fully mobile about the amount you can borrow. It can also translate to better savings as well.
A higher credit score will enable you to get lower interest rates on loans compared to average interest rates. As a consequence, you can get bigger savings on a transaction that you are supposed to pay higher. A title loan on a contract to sell land at $200,000 for 30 years will amount to almost $187,000 just on interest. That’s almost the value of the land. However, if you have a credit score high enough to get a loan at 4% interest over 30 years, you will end up owing only $144,000 on interest payments. The savings you can go to as much as $43,000.
Availability of Options
More options on what they can borrow the money for are available for those with high credit scores. While a bad credit holder can only borrow to buy a second-hand car, those with good credit can easily be approved for an appropriate and new family car. Just knowing that you have the ability to borrow money for whatever reason you have is proof that you need a good credit score to move further in your life. Borrowing for capital can be easy enough for those who have a stable job and have assets to work with. The mere availability of options is prize enough for those who pay well.
Credit cards prey on those who cannot pay on time. Most loan sharks owe their business to those who are notoriously bad at paying their credit card bills on time. Having a good credit score will rid you of that kind of problem. Better credit card interest rates and premiums are just a few of the perks that good credit has. Travel incentives and offers as part of credit card points can be part of credit card arrangements, especially if you have a good credit score.
Banks’ loan services and products will be widely available for people who have a good credit score. Not everyone is allowed access to most of the banks’ loan products. Some of these are neatly arranged for the borrower to have flexible arrangements with the payment terms of the bank. Billionaires are even offered flexible agreements on the methods of payment. Because of flexible arrangements, some banks even allow just an acknowledgment or a guarantee to borrow or loan. Flexible arrangements are always available for people who are reliable enough to pay correctly.
With these ideas in mind, you can see the importance of a credit score. Consider what you can do to improve yours.
Hemant Kumar is a project manager at Tridindia with more than nine years of commendable experience in writing about LMS, translation, and IT. His unmatched talent and passion for digital marketing gave him the opportunity to work as a multi-tasking project manager at TridIndia’s sister company, Link Building Corp. Today, he contributes to the world by imparting knowledge on SEO, link building and internet marketing etc., that helps business owners grow their online business.