A person’s FICO credit score should not be taken lightly. Obtained through a system called credit rating, it largely determines the decision of creditors whether to grant you credit or not. A credit score can also be used to determine the terms and interest rates that have been granted to you.
The score is determined after evaluating your credit report. Some of the elements that will find your way to the credit report are the number, type and age of the accounts you keep, the payment history, whether you pay your bills on time and the outstanding debts. The creditors then use a statistical program to compare your loan repayment history with that of consumers with similar profiles.
In general, the rating system assigns points to each factor that is able to predict the person who is most likely to repay a debt. Creditworthiness, ie the total number of points, predicts a person’s creditworthiness. Ideally, this represents the likelihood that a consumer will repay debt when it is due.
Why is good credit important to you as a consumer? As mentioned earlier, your score largely determines the creditors’ decision whether to borrow money or not. If a lender chooses to give you credit, your score will also be used to determine the amount, terms, and interest rates. Some insurance companies also use credit reports to predict your likelihood of filing a claim and the amount. Therefore, this information is helpful for you when deciding whether to grant you insurance and what premium to charge. This includes car insurance. Insurance companies refer to these ratings as insurance ratings.
Consumers are advised to maintain creditworthiness for various reasons. Below are other benefits you can get from a good credit rating:
• It makes it easier for landlords to approve your application for renting houses and apartments
• You get more borrowers. Banks and other financial institutions will find it easy to borrow more money at lower interest rates. This is mainly because a good score increases your bargaining power
• Having a good credit makes you feel good – especially if you have had to work particularly hard to make your credit rating bad or bad too good.
Conclusion: While lenders usually consider many factors in addition to creditworthiness to make credit decisions, with a good score they are perceived as low-risk. Ultimately, you qualify for many types of loans and loan offers at the lowest interest rates available to you.