Your Good Credit is an Asset

Credit scores are often discussed by the media and on advertisements on the radio and television. Even though most of those companies are trying to get you to buy something, they are moving in the right direction. Your credit score is very important. It is a valuable financial asset that you carry with your wherever you go, which is why it is important to take care of it and try to maintain a high credit score.

What is your credit score?

Your credit score represents your financial reputation. It is a reflection of your payment history, how much you owe, the length of your credit history, types of credit you hold,  and any recently opened credit lines.

Here is how your credit score is determined:

Why your credit score is valuable

Borrowing Money: Banks only lend money to people who they believe will repay them. A poor or non-existent credit history may prevent you from getting a loan. If you do get a loan, you will represent a higher risk, so your interest rates will likely be much higher than if you had good credit.

Note: Due to the current financial crisis, many banks have tightened lending restrictions, making a high credit score more valuable.

Interest Rates: Banks charge interest rates based on several factors – namely, how much it costs the bank to borrow money, and how much of a risk they are taking when they lend money out. The lower your credit score, the higher your risk, and the higher the interest rates you pay. A high credit score can result in lower interest payments, which can equal thousands of dollars over the course of a loan.

Insurance Rates: Insurance companies almost always run a credit check when giving quotes because there can be a correlation between credit worthiness and responsibility. A longer credit history and higher credit score will usually result in lower insurance premiums.

Employment: Background checks are becoming more popular as a pre-screening tool for job applicants. Hiring companies want to make sure their prospective employees are a good investment for their salaries and training dollars. Your credit score is usually part of that background check, especially if your job deals with financial information or other sensitive data.

Security clearances. Many military and government jobs require a security clearance. Part of the security check is your credit score, which can have a direct impact on your ability to get a security clearance. Your inability to get a security clearance due to debt can ruin your military career.

Renting: Landlords are in the business for one reason: to make money. The house or apartment they rent is an investment and they want to ensure their tenants are going to pay. A credit check is often part of the pre-screening process they use when renters apply for their property. A poor or non-existent credit history may make it more difficult for you to find a landlord who will rent an apartment or a house to you.

Cell Phones: Your credit history even comes into account when you apply for a cell phone. Cell phone companies want to ensure they are going to get their money on time every month, and if you have shown a history of not being able to make payments, cell phone companies will be less likely to sell you a phone plan.

A strong credit history is a valuable financial asset

In our society, having an established credit history and a credit score is essential. A lack of a good credit history can put you at a financial, professional, and social disadvantage. Your credit score is your responsibility. If you do not have a credit history, I recommend taking out a small loan to prove you can make payments. If you have a poor credit history, I recommend working on improving your credit score.

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Date published: October 1, 2008.

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Ryan Guina is the founder and editor of this site. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is currently serving in the IL Air National Guard. He also writes about money management, small business, and career topics at Cash Money Life. You can also see his profile on Google.

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