The credit score is one of the most vital figures in the financial status of any person. It defines whether one can qualify for credit cards, loans, mortgages, rental applications, and much more. It also determines the interest rates and offer terms you are likely to be given. So where should your credit score fall – is higher always better or are there situations where a lower score might be acceptable or even desirable? Okay, now let’s consider the options: the advantages and the disadvantages.
It is for this reason that people need to strive to maintain a high credit rating
FICO is the most popular credit scoring model which has a scale of 300 and 850. In general the higher the scores, the better. A score of 760 and above is considered to be very good and will enable you to secure the best rates and miscellaneous charges on loans as well as credit cards. The lower the credit rating, the higher the interest rates that will be charged, lower credit limits and the increased chances of being declined credit.
Here are some key benefits of maintaining the highest credit score possible:Here are some key benefits of maintaining the highest credit score possible:
Improved loan quality – Loan rates especially the mortgage and auto loans depend on your credit score. Several points less or more could result into thousand dollar difference on charges on interest for the period of the loan.
More Buying Capacity – The lenders do not only consider your income level to decide whether you are fit to get a mortgage or not. They also consider the credit utilization ratio and total credit limit. A higher score therefore can help one be eligible for a higher loan amount.
Less Insurance Cost – Insurance firms are now employing credit based insurance scores to determine costs. Drivers with bad credit pay an national average of $1,528 per year to insure their vehicles while those with good credit can save hundreds of dollars.
Better Employment Opportunities – Despite the actuality that it is unlawful in some states, estimations indicate that approximately 47 percent of employers utilize credit reports as a screening tool on applicants for a given job position at one time or the other. Having a bad credit rating may be detrimental to your employment prospects particularly if you are seeking jobs that are considered to be suitable for employees who have a clean credit score.
More Flexible Credit Checks – Tenants ranging from landlords conduct credit checks on applicants frequently. Credit scores below 650 may result in additional costs, higher security deposits or even denial of a loan application.
More Choices in Financial Instruments – Certain financial instruments and wealth management solutions are only open to individuals who maintain excellent credit rating. For instance, establishing the accounts whereby money can be passed on to the heirs without being taxed, or creating intricate estate plans usually need good credit.
When You Might Accept A Lower Credit Score
Credit scores should be above 760, but in some cases, one can decide to stop striving for that perfect score.
You Have Little Credit History – Those who have a little experience in credit, i. e. , those who have a credit score of less than 3-5 years, begin with a lower score (often below 700) because scores appreciate longevity. The important thing that defines the period is the creation of good habits.
If you are the type of person that only needs credit once in ten years when you are applying for a mortgage and you do not need credit cards at all then it may not be all that important to you that credit scores are high. Just remember that you need to work a little harder to establish credit again in the future if required.
In Financial Distress – The following cases which include, unemployment, medical bills, student loans, divorce or any other form of financial crisis can easily make the credit score fall below the 650 mark. Even though not desirable, meeting the above needs may require letting your score drop until such a time that you can afford to post better scores.
As one approaches retirement age and stops applying for credit cards and other loans and starts relying on personal savings or social security, credit scores are not significant. Eliminating mortgages and loans before retiring could reduce the score as there would be less utilization of credit.
Are there credit scores that are not too good, but not terrible either?
Balancing the advantages and disadvantages, it can be argued that maintaining one’s credit score above 760, even if it means spending time and effort, is the most beneficial and financially advantageous option. The fair credit score range is from 630 to 689, and although it is rather low, it may be temporarily sufficient depending on your life circumstances and if the benefits of having excellent credit are worth it.
In summary, you should not focus on a single credit score change on a daily basis. However, it is important to know the current state of one’s credit score and have a strategy for its management in the future. FICO and VantageScore, two of the most known scoring brands, enable you to view your current scores and Credit Reports for free. The least you can do is a yearly check and this makes you aware when something is wrong or looks fishy and make necessary adjustments to get back on track regarding your credit goals.
