Your credit score isn’t simply an arbitrary number designed to give you nightmares every time you think about it. In fact, it can be a useful tool in helping you assess your finances and the areas in which you can improve. Ultimately, however, your credit score is used by lenders and others to assess just how fiscally responsible you are and how much of a risk you carry when it comes to borrowing money. Here are the most important reasons why your credit card is so important.
A good credit score is essentially the deciding factor when it comes to getting approved for a loan. For an FHA home loan, lenders now require a minimum score of 580. To get an auto loan, the numbers vary depending on the dealer; however, the requirements tend to range anywhere from 580 to 640. Credit card approvals are similarly contingent upon your credit. While there are a range of options, you’ll need a high score to qualify for cards with lucrative rewards programs, whereas secured and prepaid credit cards are available if you have a low score and are working on rebuilding your credit.
Lower Interest Rates
Even if you’re approved for a loan or credit card, your credit score continues to be an influential factor in the loan process. The offer on the interest rates and other terms you receive also serve as a reflection on the strength of your credit score. The higher your score, the lower your rates will be, and vice versa. You might also be charged additional fees if you have lower credit. The good thing is that interest rates, particularly on credit cards, aren’t set in stone. As your credit score increases, you can often negotiate your rates to a lower percentage if you’ve been a longstanding customer with consistent payments.
Employer Credit Check
Some employers use your credit score to help decide if they want to hire you. It’s not fair, but it is happening. A recent report done by the Society of Human Resource Management found that 60% of employers admitted to using credit checks as a deciding factor. One reason they are doing it is to simply narrow down the pool of candidates. A lot of people are looking for work right now, and fiscal responsibility can point to character.
Another reason they are doing it is to see if you are telling the truth on an application. Employers know you have friends and family who will lie for you, so references are not as relied upon as they once were for factual information. Lastly, the nature of the job may necessitate the proper handling of money. If you do not have a good history in doing so, then a company is not going to want you to be in charge of their finances.
Nevertheless, with the state of the economy, there are a lot people suffering from bad credit, so while credit is not the deciding factor in the hiring process, it is a contributor.