Why Your Credit Score Is Important

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Does money make you happy? Flickr/ 401(K) 2012

Have you been thinking about what credit score is ? And, probably wondering whether it has an impact on your borrowing capacity and general lifestyle?

Well, it does.

Your credit score goes beyond the loans you can get and the interest rates you pay.

Credit scores are crucial as they give lenders a fast and objective measurement of your credit risk.

Insurers, on the other hand, normally use credit scores to set premiums for homeowner's coverage and auto.

Landlords can also use credit scores to decide who’ll get to rent their apartment.

With that being said, you might probably be wondering why your credit score is so important.

Well, in the text below, we shall look at why this financial tool is such a crucial asset.

Applicants Receive Loans Decisions Quickly

Credit scores are normally delivered instantaneously, and this is crucial as it helps lenders to speed up the loan application process.

Today, you don't have to wait for the entirety for your credit decision, instead, it can be done in a couple of minutes.

So efficient is the credit score system that even a mortgage application can be approved within days as opposed to weeks or even months.

The credit scoring system has made it easier for retail stores, internet sites, and other lenders to make an "instant credit" decision.

This has a greater benefit to those with a good credit score because they know the application is likely to get approved in the shortest time possible, and so, they can easily move forward unhindered with their plans or purchases.

Credit Decision is Fair

Generally, credit scores provide an objective way to assess the creditworthiness of an individual, as opposed to personal feelings.

Here, lenders will only focus on the facts solid and objective facts related to credit risk.

Factors such as age, race, nationality, or even marital status are usually not considered during the fact-checking process, and this way, a lender can make a more fair decision when approving for a loan.

Credit “Mistakes” Have A Lesser Impact

The good thing about a credit score is that even if you had a poor financial history in the past, it wouldn't haunt you forever.

With time, the past credit issues will pass away as the recent good payments come into play.

A credit score report will save you from the “knock out” rule that normally turns down borrowers solely on a financial problem on the past.

Generally, a credit score works as an arbitrator, weighing in both the good and the bad of your financial health.

This way, a lender can make a more holistic and informed decision on whether to approve your application.

Precise Data Might Increase the Potential for Lending

Generally, lenders who rely on credit scores usually have confidence in approving more loans.

This is because the scoring normally provides them with accurate information on the risk as well as other essential credit factors.

In my opinion, the scoring system is beneficial to all levels of borrowers because it will allow the lender to approve products that are aligned with the different risk levels, as opposed to automatic approval or rejection.

The system lets the lender easily identify individuals who are more likely to have robust financial health in the future, regardless of whether their report shows past problems.

However, understand that since the scoring guidelines, as well as the approval guidelines from lenders, vary, you might find that your request approved by a second lender if turned down by the first.

Employers Can Check Your Credit

An increasingly common, though somewhat controversial practice taking place, is where potential employers check on the credit reports from the prospective employees.

The argument for this practice is that employees can use the credit score to determine the overall responsibility of an employee.

Now, while there’re some situations where a bad score is completely out of your reach, it’s certainly something worth keeping at the back of your mind.