Why do you need a good credit score

Reasons Why You Need a Good Credit Score

At this point, you are probably wondering why a credit score is so essential to fix and why people make such a big deal about it. Well, you may not realize it but your credit score affects many things in your life.

Believe it or not, but the first thing that the loan office looks at when determining whether you will be approved or not for a loan of any kind is your credit history. That being said, bad score credit can really effect you in a negative way and often times prohibit you from even being approved for a loan. Imagine how awful it would be if you could not buy the car you wanted simply because you could not be approved for a good loan due to your bad credit. Don't let this happen to you.

Why do you need a good credit score

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When you have a bad credit score, your interest rates on any types of loans or payments are going to be higher than that of other peoples. This is because you have shown your inability to be financially responsible, which can have a large negative impact on you. You do not want to be left paying insanely large amounts of interest simply because your credit score is worse than it should be. By getting control of your bad credit report you will ultimately save a good deal of money on interest payments.

Your ability to buy a home and be approved for any sort of home mortgage rests solely on the fact that you are going to be able to pay the price of the house off. With something as large as the purchase of home where you are unable to pay the entire price up front, companies rely on your ability to make monthly payments to the house. Thus, when you have a bad credit score, all the companies and real estate agents can know is that you may be unable to make the payments on the home. No one wants to enter a deal with someone who is financially delinquent.

Why is a good credit score important?

At Noddle we often get asked why it’s so important to have and maintain a good credit score.

The answer is that these days, having a good credit score is incredibly important and can have a large and very real impact on your life in many ways.

Your credit score is part of your financial passport which shows potential banks and lenders who you are and how likely you are to manage their money if they lend to you. A bad credit score can make you a risky bet while a strong credit score is encouraging to lenders and can ensure you get the best deals out there, which saves you time, money and worry.

By the big things, we mean those expensive life-changers such as a house or a car which you’re likely to need to take out a loan or mortgage to afford. Banks and lenders use your credit report and credit score to assess how you’ve managed your credit in the past and use this to predict how financially responsible you’re likely to be in the future if they lend to you. A strong credit score can lead to much better interest rates which on a large long-term loan such as a mortgage could mean saving thousands of pounds.

Not everyone realises this but employers will sometimes run a credit check on a potential employee before hiring them. There are many reasons this might happen and while it may vary by industry, an employer may want to see how responsible you are with your own finances and a poor score could limit your chances of promotion or even prevent you from being hired in the first place. While employers can’t run these checks without your permission, refusing the employer from doing so could make them even more wary and could mean you miss out on the job regardless of your score.

Starting your own business

Many of us dream of working for ourselves, managing our own company and dictating our own terms but before you hand in your notice you need to consider the strength of your credit score.

Starting a new business often requires large loans to cover the start-up costs but if your credit report shows you’re not good with your finances then it’s unlikely a bank will consider lending you what you need.

For some this one will be a surprise too but more and more people are finding themselves being turned away for a mobile phone contract, or not getting the one advertised in the window because of their credit score. It makes sense though, because when you walk out of the phone shop with a shiny new touchscreen with camera and coffee making function, the company is expecting you to pay them back over the next 18 or 24 months… just like a loan.

The good thing about a credit score is that it can always be made healthy again so if you’re worried about it and are wondering what you can do to then why not consider getting Noddle Improve.

Not only does Noddle improve give you access to your actual credit score but it also analyses your credit report and tells you what might be affecting your score and what you can do to improve it. And best of all, this October we’re offering all Noddle members 1/3 OFF the price of Noddle Improve which makes it £20 instead of the usual £30. So take control of your finances today by logging into your Noddle account, navigating to ‘Credit Score’ and take advantage of this limited time offer.

Why do you need a good credit score

Why do you need a good credit score

Why do you need a good credit score

Why do you need a good credit score

Why do you need a good credit score

Why do you need a good credit score

This content is not provided or commissioned by the bank advertiser. Opinions expressed here are author’s alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program.

What Is a Good Credit Score – Understanding Credit Score Ranges and Why They Are Important

Why do you need a good credit score

Y ou have seen the commercials and heard the radio jingles, so by now you know that a good credit score is important. But what is a good credit score? Generally, anything above 700 is considered a good FICO credit score.

But that is not the end of the story. The reality is that a good credit score doesn’t guarantee a loan or mean that you are in good financial shape. A good credit score just gives the lender another piece of information to help determine your credit worthiness. Your ability to get a loan depends on many factors, including your credit report, your credit history, amount of available credit, credit utilization, and other factors. Many lenders even use specific types of credit scores for certain loans. For example, the FICO 8 score is often used by mortgage companies to determine one’s ability to qualify for a mortgage.

What is a Good Credit Score Range?

Why do you need a good credit scoreYour credit score is determined by a proprietary mathematical formula. There are many different versions of credit scores, but the most commonly referenced is the FICO credit score, which is considered the industry standard. Your credit score is based on a weighted formula which includes your payment history, amounts owed, age of credit history, recent loans, and the types of credit you have. The FICO credit scores range from 300 to 850 and a good credit score range is considered 700 – 850. Here are more credit score ranges and their ratings.

  • FICO credit score range: 300 – 850
  • Good credit score: above 700
  • Average credit score: 680 – 700 (depending on source)
  • Poor credit score: Below 620

Why You Need a Good Credit Score

The FreeCreditReport.com commercials want you to believe you need a good credit score to drive a nice car and pick up chicks. Unfortunately, that’s not quite true. A good or bad credit score doesn’t guarantee a loan or necessarily prevent you from getting a loan. A good credit score will make it easier to be approved for a loan, allow you to have more available credit, and qualify you for lower interest rates when you are approved for a loan. And low interest rates can make a HUGE difference over the life of a loan.

How a good or bad credit score affects interest rates. Loans are available to almost anyone, even people with a poor credit score. But the terms and size of the loan will vary widely. The difference will come in the form of the required down payment or the interest rate you will have to pay. Let’s look at some examples of how good and poor credit scores will affect your payment structure on a mortgage, then on an auto loan. There is a substantial difference in monthly payments between high and poor credit scores, and the payments over the life of the loan should be enough to convince you that a good credit score is valuable!

Effect of Credit Score on 30 Year Fixed Mortgage Rates

The score ranges and interest rates below come directly from the MyFICO website. There are three examples given for credit score ranges and interest rates, one is for auto loans and the other compares credit score and interest rate ranges for 15 and 30 year mortgages. The example below is from the 30 year fixed mortgage at $300,000:

Comparing good credit mortgage rates and bad credit mortgage rates. Using the numbers above, you will notice there isn’t a big difference in the monthly payment from the top credit score to the second tier credit score range of 700-759 (remember anything over 700 is generally considered a good credit score range). Once you start dropping into the lower tier credit score ranges, you will see a large monthly difference in your payments. But thinking in terms of monthly payments can be an expensive way to think, especially when you consider that this is for a 30 year mortgage.

Even with the best credit score, making minimum payments on a 30 year mortgage means paying $256,564.15 in interest over the life of the loan. Paying 6.234% interest over the life of a 30 year mortgage equates to paying $363,851.12 in total interest. To put it another way, that monthly difference of $298 equals a difference of over $107,000 over the life of the loan.

How Your Credit Score Affects Auto Loans

Using the same concept as we used above, let’s examine the how your credit score range affects your monthly auto payments. The MyFICO website references a 36 month fixed rate auto loan for $25,000.

Comparing good credit auto loan rates and bad credit auto loan rates. As you can see, the monthly difference between the good credit score range and a poor credit score range is $155, or over $5,500 for the life of the loan.

How Your Credit Score Can Impact Other Areas of Your Life

Some other companies or industries may also check your credit history or credit score. Here are some of the ways they may use your score:

  • Employers: Whether it’s right or wrong, employers believe that financial health is a good determinant of whether a potential employee will steal. Reviewing a credit history has become standard in background investigations, especially if they are security related, because someone in difficult financial shape may be tempted by bribes. While bankruptcy can’t be a factor in a hiring decision, everything else in the history is fair game.
  • Insurance companies: It’s unclear why insurance companies use credit in their decisions but the fact they do is very clear. The lower your credit score, the higher your premiums will be. For whatever reason, their actuaries have determined that lower scores mean more claims.
  • Landlords: Landlords have been checking credit scores and histories since the beginning of time because they’re essentially “lending” you the value of rent each month. If you’re unable to regularly meet other obligations, you might not be able to make rent and that’s a problem. This same logic applies to service contracts, like cable or cell phone service.

Have a poor credit score? Credit scores under 620 are often considered sub-prime loans, and come with more risk to the lender. Borrowers with credit scores in this range often pay substantially higher interest rates. If you fall below the sub-prime loan cutoff limit, it may be best to try and improve your credit score before applying for a loan. You may find it easier to obtain a loan and the terms will likely be better.

Remember, not all is lost. As we mentioned above, you can almost always find someone to give you a loan if you need one. You will see a difference in the terms of the loan, though. You may be required to pay a larger down payment or higher interest rates to get the loan you are seeking.

Your Credit Score is Important

Like it or not, your credit score plays an important role in your ability to obtain a loan, the amount of available credit you can carry, and the interest rates you will pay. If you are considering applying for a loan in the near future it is probably a good idea to know your credit score and try to improve it before applying for the loan.

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