In a previous article, we discussed how credit works, and showed you how to keep an eye on your credit by getting your 3 credit scores for free. In this section, we would like to discuss a bit about why credit is so important in this day and age. Additionally, we will demonstrate why having a good credit score is beneficial for consumers.
Good Credit Gives You Purchasing Power
Let’s face the facts: credit makes the world go around and is used to purchase a wide variety of things that most people don’t have the immediate funds for. Not many people have a few hundred thousand dollars in the bank to purchase a home, or even $50k to purchase a nice vehicle. This is where your credit comes into play and why it’s highly important to have good credit if you plan to purchase expensive high ticket items using loans.
If you have a good credit score, a world of consumer opportunities awaits you. Having a good credit score allows you to purchase things you wouldn’t otherwise be able to afford in one lump sum. This usually involves the big purchases of life such as houses and cars, but can also include things like student loans, expensive electronic equipment, and opening up a line of credit at your favorite store.
Lenders and banks are more than happy to assist consumers in purchasing more expensive items if they have a proven track record of paying their bills and debts in a timely manner. Furthermore, having good credit can even lower your interest rates on these loans.
A High Credit Score Shows You Are Responsible
When you pay your credit card payments, car payments, student loans, and even rent/mortgage on time, you are helping to build a positive credit score. This demonstrates to future lenders that you have fulfilled your past loan obligations and they will be more than happy to loan you money for your future purchases which will most likely include a nicer car and house somewhere down the line. Banks love giving loans to responsible, low-risk consumers because it’s how they make their money. You will receive the money you need immediately and then pay it back over time (usually 3-5 years for cars, 10-25 years for houses, etc) usually with a small interest rate.
Lenders and Your Credit Score
Almost all lenders report monthly to the 3 major credit bureaus – Equifax, Experian, and TransUnion. When you are making your loan payments on time, these lenders will report that you have fulfilled your obligation by paying a percentage of the loan amount as agreed. Other lenders see this when they go to view your credit score and most likely award you the loan you are seeking.
On the flip side of the coin, if you take out a loan and miss your monthly payments, these lenders will report to the credit bureaus that you are not paying back your debts as promised. This will drastically lower your credit score and make it much harder to get a line of credit in the future. Most bad marks on your credit can take 7-10 years to fall completely off. As you can clearly see, paying your loans on time every month is highly beneficial to your long term success as a consumer.
Finding your Credit Score & Protecting Your Credit
You can view your 3 credit scores online for free by clicking here. Most of the credit offers we have reviewed and rated will provide your credit score for free or a very low price, and also offer additional services such as credit monitoring, fraud alerts, and identity theft protection. Having a solid credit monitoring service in place will help protect the credit score you’ve worked so hard to build up.