The Impact of Credit Scores on Your Financial Health

To understand the impacts of credit scores on your financial health, you need to know what credit score is.

What is a Credit Score?

Credit score is shown in basically three digits, ranging between“0-999”. It is used to check the history of the borrower before lending the value to know whether the person or company is able to repay the debt or not. Also, it is important for lenders such as credit companies or banks to fix the interest rate and credit limits. If a person or company has a higher credit score, it means there is low risk in terms of lending money repaying debts. The most commonly used credit scoring models are FICO and VatageScore. So, understanding credit scores means understanding the impacts of credit scores on your ability to secure loans, the interest rate you receive, and your financial growth.

The Ways Credit Scores Affect Financial Health-

1. Loan Approvals and Interest Rates: Lenders analize credit scores before approving loans and offering interest rates. Higher credit scores lead to getting approvals of bigger loans and lower interest rates on mortgages, auto loans and personal loans. On the contrary, a lower credit score leads to higher interest rates and loan denial.
   
2. Credit Card Benefits and Limits: Credit issuers approve credit cards and determine credit limits for borrowers based on the credit scores. With a higher credit score you may get opportunities of accessing premium credit cards with lower interest rates, higher limits and rewards programs. On the other hand, a lower credit score may lead you to get a subprime credit card with high interest rates and lower limits, and less beneficial offers.
   
3. Renting Home: Often landlords check credit scores before handovering their home to the tenants. A person with a good score is considered as a reliable tenant. If your credit score is low, you will have to face problems getting homes for rent. You may need to pay a high amount as a security deposit or find a cosigner.
   
4. Employment Opportunities : In some cases of job vacancy, employers check the credit scores of candidates, especially when the job positions are related to financial departments. At that time, negative issues or lower scores in your credit history may directly affect your opportunities to get the job.
   
   Insurance Premiums: To get an affordable premium for auto and home insurance policies, you need to focus on your credit scores. Because, sometimes insurance companies determine premiums based on credit scores. They may consider a lower scored credit card holder as a higher risk customer.

Steps to Improve Credit Score

If your credit score is lower than the ideal, there are steps you can follow to improve it.

1. Timely Payment: Try to pay your bills on time. You can use reminders on your phone or automate payment options to avoid late payment.
   
2. Reduce Credit Utilization: Try to keep your credit card balances lower than your credit limits. You should not use more than 30% of your credit limits.
   
3. Follow Up on Credit Reports: Check your credit reports regularly from the free website AnnualCreditReport.com and dispute any inaccuracies.
   
4. Limit New Applications: You should not apply for multiple credit accounts in a short period. It will negatively affect your credit scores. So, without emergency, don’t open new accounts.
   
5. Maintain Old Accounts: A long time sustained account impacts on credit history positively and increases your credit scores. So, try to keep open your older credit accounts.
   

A good credit score is the reason for your good financial stability. It can make everything easier for you including renting a house, taking loans, getting job opportunities etc. Monitoring your credit reports regularly and taking proactive steps for improving credit scores can make your future easy to have strong financial stability.