Why are Credit Scores So Important?

Banks Editorial Team · November 13, 2018

Why are credit scores so important? Your credit score is important because it is a financial tool used by banks, insurance companies, credit card issuers, landlords, mortgage finances, auto-loan providers and other lending entities to determine the creditworthiness of an individual and assess how much risk you carry before giving you any credit.

Ok, so what is a credit score exactly? It is the three-digit number found in your credit report which indicates how creditworthy you are which ranges from 300 being the lowest and 850 as the highest. Why is credit score so important? The higher your credit score, the more money you will save! Check your credit score now to see how you rate:



Why Are Credit Scores So Important to Lenders?

Why are credit scores so important to lenders? A credit score helps lenders determine who qualifies for a loan and what interest rate, credit limit and terms an individual should receive based on their riskiness. In other words, the higher your credit score, the better the interest rate and perks you can get and the higher the credit limit. A better interest rate means more money in your pocket in the long run since you will pay back less $ in interest. Needless to say, a better credit score means helps you get more easily approved in renting an apartment and qualifying for a credit card.

Find out your credit score now for free through Credit Karma link in the resource section.



Why Are Credit Scores So Important for Financing Rates

Why are credit scores so important for financing? Credit score is used by lenders to make decisions on whether you qualify for their services. For instance, if your credit score falls below 600, you might not get the best interest rate or loan term when getting a mortgage deal. Some lenders may give you financing, but they’ll adjust the interest rate to compensate for the risk your score poses. A lower credit score usually results in a higher interest rate for you, which means that a bigger portion of your monthly payment is applied to interest rather than the principal. The more interest you end up paying over the long run, the less you pay towards your actual purchase, which means making monthly payments for a longer period of time. Having a high credit score, therefore, means you won’t have to make as many monthly payments compared to having a low credit score.

Credit scores are one of the few ways for lenders to assess a borrower’s risk and can mean the difference between not just qualifying for the loan, but also paying hundreds to thousands more in interest.

So the sooner you find out what your credit score is, the sooner you can improve it by making on-time payments, and the more money you will save yourself over the long run!



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