Having good credit is important for more reasons than you might think!
Earning a good credit score requires some hard work and discipline. You need to avoid high credit card balances, not open too many credit cards or take on too many loans at once, and pay your bills on time.
It may seem like a lot of effort, but practicing responsible borrowing behavior earns you the best credit score you can get. Here's a look at four big reasons having good credit matters.
1. It affects your ability to borrow
Your credit score is one of the most important factors when lenders consider whether they want to do business with you. Whether you're applying for a mortgage or just getting a cell phone contract, lenders take a close look at your credit history.
If your credit score is good, you should have little trouble getting approved. But if you have a low score because of a history of borrowing mistakes or maxed-out credit cards, you could face frustrating denials.
2. It determines your interest rate
A good credit score doesn't just determine whether you can borrow -- it also has a profound impact on the cost of borrowing. If you have good or excellent credit, you should qualify for loans at an affordable interest rate. This lets you make large purchases that require a loan, such as a house or a car, without paying a fortune in interest.
Unfortunately, if you don't have good credit, lenders willing to give you a loan are likely to charge you a fortune as a subprime, high-risk borrower. High interest rates can make debt payoff more difficult, result in higher monthly payments, and potentially compromise your other financial goals.
3. Employers may look at your credit history
When you apply for a job, an employer considers many things to determine if you're a responsible person they want to hire. Chances are good your credit report will be one of them.
Many companies review credit reports when making hiring decisions. If you have a good report and score, this won't be an obstacle to employment. But if your score is low and you have black marks on your credit report, you could get denied a position.
4. Your insurance rates could be affected
Auto insurers also look at your credit history when they decide how much to charge you for insurance. If there are red flags, you may pay higher monthly premiums. Since you're required to have car insurance to drive, you could waste a lot of extra money paying costlier insurance bills for months, or even years.
You don't want to limit your borrowing options, lose out on job opportunities, and pay high premiums and interest rates, so take steps now and in the future to ensure your credit score is as good as possible.
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