Credit scores are used by most lenders. They’re important to have if you ever decide to purchase a home, a car, or even open your own business. Potential employers or landlords, as well as cellphone and utility companies, may look at your score to determine whether to do business with you. Credit scores can range anywhere from 300 to 850.
The higher your score, the more money you can typically borrow and the less you have to pay for a loan. Any score under 620 is considered “high risk.” Bankruptcy, late payments or referrals to collection agencies can all affect your score negatively and this information can remain on your credit score for seven years. To increase your score, pay your bills in a timely manner and pay your credit card balance off each month.
You need a credit score when applying for a loan so the lender can assess how much of a risk you are. Additionally, the better your credit score, the better terms and interest rates you'll be offered.
If you want to purchase a big-ticket item, you’ll likely need a loan to do so. However, lenders won’t loan money to just anybody. The first thing a bank or loan office will look at when they decide whether you will be approved for any type of loan is your credit history. A bad credit score can stand between you and approval for a loan. And this means you might have to wait for that big boat, motorcycle, SUV or vacation.
Interest Rate Price
Even if you qualify for a loan, your credit score greatly influences your eligibility for either high or low interest rates. For the best rates on a loan or a credit card, ideally you want a score that’s at least above 720.
When you have a bad credit score, your interest rates will be much higher than someone with good credit. Interest rates can be outrageously high for those with bad credit. Some lenders can charge as much as 25 percent or higher for those with less than stellar credit. Interest rates that high can make it nearly impossible to pay off a high balance.
Most lenders will require a credit score of 600 or above before they will even think about giving you money to purchase a home. No one wants to do business with someone who is financially challenged -- particularly if you are asking to borrow money for 30 years on a house. Bad credit scores can scare off real estate agents if they know you may be unable to make the payments on the house.
After the housing market failed, many banks became more cautious when it comes to approving someone for a mortgage. To be approved for the purchase of a house, lenders have to feel confident you are going to be able to handle the mortgage payments.
Your credit score may have a huge impact on the amount you have to pay for auto, homeowner's, health and life insurance. Realizing that credit ratings have a correlation to future accidents and claims, some insurers now factor it into the premiums they ask their customers to pay.
- Privacy Rights Clearinghouse: Your Credit Score: How it All Adds Up
- Bankrate.com: How to Get a Free Credit Score
- Credit.com: What Is a Good Credit Score?
- On Deck: Why Does My Lender Want to Know My Personal Credit Score?
- Credit.com: What’s the Lowest Credit Score I Need for Home Loan?
- Progressive: Insurance Scores: What You Should Know