Credit scores impact more than just interest rates and approval odds. They are used by lenders, insurers, landlords, and many others to determine the likelihood of you paying back certain loans and big purchases. Here are a few reasons why credit scores matter overall.
Getting a Personal Loan
A personal loan is typically used to cover the cost of certain life expenses, debt consolidation, car and/or house repairs, weddings, medical procedures, etc. When applying for a personal loan, the lender will ultimately check your credit. They’ll use it to determine if you qualify for a loan through them and what your interest rate will be.
Buying or Leasing a Car
Credit scores also make an impact on buying or leasing a car. Dealerships will run a credit check, which will give them an idea if you’ll make payments on time. Your credit score will also determine if you’re approved or rejected for a lease or a car loan. Dealerships will charge those with lower scores a higher interest rate. This will lead to higher monthly payments and more interest paid over the life of the loan. Your credit score will also affect the auto insurance rate and which ones will be offered to you. Having a poor credit score could get you a higher rate, whereas a good credit score may lead to a lower rate.
Purchasing a Home
When it comes to buying a home and applying for a mortgage, your credit score will play a vital role in the processes. Mortgage lenders will check your credit before they qualify you for a mortgage loan. A low credit score could be considered risky to them, and they may assume you’d default your mortgage. When paired with your DTI (debt-to-income) and financial history, a good credit score is vital for low interest rates that will impact your mortgage payments. Low credit scores will result in a higher interest rate that’ll lead to high mortgage payments.
Renting an Apartment
Aside from mortgages, your credit score also plays a role when you’re applying for an apartment. Landlords will want to do a credit check on future tenants before doing a lease agreement so they can get an idea if you pay rent on time. There are landlords who may require those who are interested in an apartment to have a specific credit score, and there are some who may be more lenient with fair or poor scores. Along with your credit score, they’ll check to see if you have any prior evictions or debts.
Bottomline is that lenders use credit scores to determine if you are responsible with your finances. Try to maintain a good score by making payments on time, being mindful of your credit limits, and keeping your credit utilization as low as possible. Interested in learning more about the ins and outs of credit? Watch our latest virtual credit session today.