No matter how easily you access a loan with a bad credit rating, you cannot deny the importance of a stellar credit report. Whether or not your lender pays heed to the three-digit score calculated by credit reference agencies to reveal how responsible a borrower you have been, they will certainly access the information given in your report to calculate the risk involved in loaning you money.
A good credit rating means a higher chance of qualifying for a loan at a low interest rate. Though you can get small emergency loans despite a bad credit rating, most lenders will refuse mortgages and other long-term loans.
Many of you think that savings on interest is the only benefit of having a good credit score, but the fact is that it can help you save money in a lot of ways.
How a good credit rating can help you retain more money
Here is how a good credit rating can help put more money in your pocket:
Significant savings in interest and a reduced deposit
Having said that your poor credit file will not get in your way of accessing loans from door lenders, but you will certainly need a good credit rating when you are to apply for a mortgage. In case of a bad credit rating, you will be required to arrange a larger deposit.
Normally, it needs to be 10% of the sticker price of your house, but lenders will expect the double amount when your credibility is in question. Apart from that, high interest rates will be charged.
It may not seem a significant difference in the beginning, but you might end up paying half the mortgage cost in total as interest. Therefore, it is recommended to have a good credit file. When your score is good, lenders will not seek a higher deposit and also not charge high interest rates.
- Not arranging a larger deposit means less strain on your finances. You will be able to meet your regular expenses without relying on debts.
- Getting lower interest rates means more manageable monthly instalments.
Even if you have a “fine” credit score, you should aim to push it to a “good” credit score range.
Access to the best credit cards
Credit card issuing companies also check your credit score to provide you with the best deals. With a good credit score, you can avail yourself of better cashback rewards, generous mileage, accommodation and points.
You will have to strictly meet the criteria to qualify for these benefits. However, bear in mind these factors are not the be-all and end-all. Lenders will look at your overall financial health and current debts you already owe to decide whether you are eligible for these benefits.
Another benefit of having a stellar credit file is that you can get a card with instalment payment plans. Such cards are exclusively available for those who have very good credit ratings and a strong financial condition.
Such cards will help you buy anything and pay down the balance in fixed instalments. In some cases, interest can also be waived. You will need to do proper research to understand all kinds of available deals and the eligibility criteria.
Discounts on insurance
Various car companies are out there that provide insurance deals based on your credit rating. Whether you are using a car loan in your name or taking out joint personal loans, the credit rating plays a vital role in deciding the amount of premium you will pay on your car insurance.
A good driving history is also an important factor, but when it comes to saving money on insurance premiums, your credit score actually plays a crucial role.
However, it does not insinuate that you will be turned down if your credit score is not so impressive. The fact is that a good credit rating will allow you to qualify for low premiums.
Do up your credit score and then find more inexpensive insurance at the time of renewing your policy. Bear in mind there are a lot of other factors that decide your premium amount. Do proper research so you do not face hefty premiums only because of being in the dark.
Deposit waiver on utilities
Utility companies may check your credit score to ensure that you are a reliable customer. A bad credit rating will call your credibility into question, and, as a result, you will be demanded to put down a high amount of deposit, but there is a possibility of a deposit waiver if your credit score is excellent.
Ways to improve your credit score
Here are the ways to do up your credit score:
- Never miss a payment. A default on your credit report continues to appear for six years. You will see its damaging effects for a very long -time. If you are behind on the payment, make sure you pay off the balance within 30 days.
- Pay off your credit card balance on the due date in one swoop. Keeping outstanding balances on your account will increase your credit utilisation ratio, which is a bad idea.
- Limit new credit applications. If you have been turned down by a lender, do not immediately apply for a loan from another lender. There should be a gap of at least two weeks between queries. A lot of inquiries will leave an impression that you cannot live without debt.
- Use different types of loans to demonstrate that you can handle multiple types of debts.
The final word
A good credit score can help you have a lot of money in your pocket in many ways. First, it will help you save money on interest. If you are looking to take out a large debt, you do not need to put down a larger deposit.
When you retain more money, you will certainly find it much easier to meet your daily expenses. Apart from that, you can qualify for good credit card deals. You can even get a deposit waiver on utilities. Therefore, it is necessary to keep your credit score in good condition.
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