A credit score is yet another three-digit figure that helps creditors get an idea about your history of repaying loans. They are one of the major indications that lenders rely on to decide your creditworthiness for loans and credit facilities.
In general, it is better when your credit score is higher. A good credit score tells the lenders that you are a responsible borrower who will honor his/her obligations to pay the debts. Therefore, to be in a better position to get these loans and credit cards with good terms such as a low rate of interest, one needs to have a good credit score.
However, the particular credit scoring model used determines also what is seen as a good credit score. FICO is the most often used model nowadays; credit scores go between 300 and 850. FICO says that here is a perfect score across many age groups: FICO claims that below is what a perfect score across many age groups looks like:
Ages 18–24: Getting a credit score of 720 or over is seen as desirable for the borrowers in this range. Maintaining a mid-700s score at this early age indicates one is a conscientious credit user.
Ages 25 to 34: When a borrower falls between these ages, their FICO score is deemed acceptable if it is 740 and higher. This range of scores points to limited use of the available credit and prompt payment.
Ages 35–44 A FICO score over 760 is seen to be excellent for this age range. This generation of borrowers has most likely created a credit profile including many types of credit.
Ages 45–54 The credit score regarded as outstanding for middle-aged consumers is 780 or above. Having a score within this range indicates that one has an excellent record as a borrower and spender over the years.
55 Years of Age and Over For those 55 years of age and beyond, a FICO score of 800 or more is regarded as outstanding. For almost two decades, this displays wise credit use and management.
Stated differently, as the chart above shows, the better regardless of age range the higher the score. However because older borrowers have more time to create extended credit histories, what is regarded as a perfect credit score does grow with age.
The importance of good credit scores, however, remains remarkably consistent across all life stages: The importance of good credit scores, however, remains remarkably consistent across all life stages:
The Importance in Your Early 20s Even when one is young and does not need large loans, creditworthiness is important especially when you are still a borrower in your early twenties. First, a good credit score means that you get access to the first credit cards and small loans, with reasonable interest rates. On the other hand, having bad credit at this early stage limits one to high interest costs.
Again, there are long-term effects of poor credit. Late payments and collections impact your credit reports in the form of negative marks that can remain for up to seven years. Thus, the payments that you fail to make on time at the age of 22 may affect your credit when you are in your 20s and applying for an auto or mortgage.
Moreover, lending institutions require the borrower to have at least six months to a year of credit records before issuing loans or credit cards. Therefore, start by establishing credit early on, especially as an additional cardholder to a parent’s credit card. Good credit in the first years of adulthood means getting larger loans approved at the beginning of the credit period.
Relevance during the late Twenties and Early Thirties This is the time most people require financial assistance for major activities such as purchasing a house, a car or even attending college. This life stage also comes with other financial aspects such as childbearing.
Credit is therefore perfect for ensuring that you get the credit you need at reasonable interest rates. Information from FICO proves that very good-risk borrowers, with credit scores ranging from 740 to 799, get auto loans at an average interest rate of 4. 07%. However, for those individuals with low credit ratings below 580, the average rate goes higher than 20 percent!
The same applies to mortgages, student loan interest rates, and insurance. Therefore, to have excellent credit in this age bracket is to save thousands of interest charges and insurance expenses in a lifetime.
Relevance in Your Mid-30s and Later Sometimes, after 10 years of borrowing, it is pertinent that credit is cheaper not only to finance your goals but for your leverage. Statistics reveal that more than half of employer background checks involve credit report checks on candidates. Tenants are also usually required to have their credit checked before being approved for a lease by their landlords.
Further, studies reveal that more workplaces are seeking insurance protection against employee theft, fraud, and violence. Some of them then utilize credit checks in evaluating matters concerning the applicants such as risk profiles.
Therefore, having excellent credit is important in reassuring the landlords, insurers, and employers when one is in their late years. Another reason why the strength of your credit history works in your favor is that it shows potential lenders that you are trustworthy and financially responsible.
The Takeaway In all ages of life, a good credit score is crucial to get favorable rates and terms when one is borrowing to finance huge purchases and expenses. It also results in reduced insurance premiums in the long run. Plus strong credit preserves your opportunities to maneuver when seeking jobs, leases, and other necessities.
Thus, it is better to learn and practice the proper usage of credit from the very beginning, maybe even with credit builder loans if you have no credit history at all. Always ensure all the bills are settled within the due dates, ensure that the credit utilization ratio is low, and also ensure that there is adequate time between loan applications. To sum up, it is possible to work on and develop a good credit history and have the credit standing great throughout the age range listed.
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