If you’ve ever been turned down for a credit card, car loan, home mortgage or other loan, you probably realized too late that it’s important to have a good credit rating. Your financial history follows you everywhere you go for years, impacting aspects of your life you never considered when you skipped a utility payment or allowed a loan to go into default. Here are just a few reasons to maintain a good credit score – or make repairs to a poor one.
You’ll need a high credit score for most mortgages. Most homebuyers will need to obtain financing to purchase a home, which means approaching a lender for a mortgage. Lenders need to consider risk factors when issuing loans, as foreclosures and short sales cost them money. Banks seek to reduce their risk, so they’ll usually only work with borrowers that have good credit.
Some companies check credit rating as a condition of employment. Certain companies will do a credit check when hiring new employees, though this procedure is more common in the government and financial sector. Similar to banks, they’re seeking to reduce their risk. Even existing employees can be turned down for a promotion or raise if they have bad credit.
Starting a business requires good credit. If you want to start your own company, you’ll likely need financing to do so. Many start-ups require a loan to get the business off the ground, and you must have good credit for lenders to consider loaning funds to you. Business owners seeking to expand their existing company may also need to secure funding, so good credit is necessary even if you’re already in operation.
You must have good credit to get a car loan. Unless you’re paying cash, you’ll need to work with a bank or finance company to obtain a loan to buy a new car. Even though the amount you borrow will be considerably less than a home purchase, you’ll need good credit to get a car loan. If you have a poor rating, you may be able to arrange a loan but you’ll likely need to supply a larger down payment on the vehicle.
Good credit saves you money. You don’t need stellar credit for every large purchase, but it certainly saves you money when it comes to the financing arrangements. Those with better credit can obtain a lower interest rate on their loan, and may be able to apply a lower down payment on their purchase. Good credit can save you thousands in interest payments over the course of the loan.
These factors should convince you how important it is to have a good credit rating, but it’s never too late to make improvements if your financial history isn’t the best. If you have questions about your credit and how it can impact your ability to obtain different types of financing, it’s smart to consult with a lending specialist. These professionals can make recommendations and let you know if you’re eligible for special loan programs.