“Your credit information can be a factor in whether or not you can rent a nice apartment, how much you pay for insurance or whether or not you can get a job.” - Liz Pulliam Weston (American Author)
It is a fact that today’s economy runs on credit. There has been a shift in the economic climate in the past decade that has lead to certain awareness in both lenders and borrowers. In the past, it was easier to get loans even with sub-prime credit score. However, it is now very difficult to procure loans with a good rate of interest even with a near-prime credit score. Credit score ranges between 300 and 850, with 850 being the best. With the current economic scenario, if you want a loan with prime interest rate your credit score should be over 700.
Importance of Credit Rating in a Credit Transaction
If you are applying for a loan to buy a car or a house, good credit history plays a vital role. Here are two things that are determined by your credit rating during a credit transaction.
- First, your credit score determines whether you qualify for a loan or not. If your credit report reflects poor credit, then it is going to be difficult to get any type of loan.
- The second point is that credit score will determine your rate of interest. Qualifying for a loan alone is not enough; you need to get a prime interest rate. If you have a credit score of over 700, the bank will see you as a smaller risk of default and you will most likely get a low interest rate loan. Or else be prepared to pay a high interest rate because the bank sees you as a bigger risk. If your credit report reflects poor credit history, it can mean the difference of thousands of dollars over the life of a loan.
Will Credit History Affect your Non-Credit Transactions?
Your credit score is a measure of general fiscal responsibility of an individual. Therefore, it is not only associated with credit transactions but also with non-credit transactions. Here are some ways that your credit score may impact your non-credit transactions.
Service providers – If you want to get a new cell phone or satellite TV service, prior to getting connected, the service provider will run a credit check. Many service providers would want a minimum credit score before letting you sign up.
Renting a house – Before renting a house or an apartment, the landlord will ask to check your credit score. If your credit score is below a certain number, you may have to put down a large sum as a security deposit before moving in.
Getting a job – Many employers are checking the credit score of their new hires along with employment background checks. If you have poor credit history, you can be passed over for a job.
Insurance Premiums – Whether it is your auto insurances, health insurance or accidental insurance, if your credit score is low, you will end up having to pay a higher premium. Despite having a decent driving record when you apply for auto insurance, if the credit report is not satisfactory, you will have to pay a higher premium.
A good credit report means you can get a better auto and home insurance. You are also eligible for a home mortgage loan at a reasonable rate of interest. A good credit report indicates that you are a responsible and reliable person.