Getting a good credit score for most low income earners might not be easily achievable due to money management inadequacies. But the willingness to start taking control of your finances will have a positive impact on your credit score.
Bad credit score denies people a lot of financial opportunities while good credit score is a tool that can open up doors in life. We need to learn the importance of using credit responsibly to better our lives.
In this article, we will be discussing the importance of a good credit score for a low income earner.
What is a credit score?
A credit score is the three digit number which basically tells a lender what your capacity is to be able to re pay a loan back to them. This number is placed on a scale that helps lenders evaluate how likely you are to pay your debt. Credit score is also a portrait of someone’s credit history and it is made up of several factors.
Credit scores ranges from 300 to 850 and it rated from poor to fair to good to excellent. When you have excellent credit, you will be able to get higher limit on your credit card. You will also be approved of any financial needs you have with lower interest rate.
Factors that determine a credit score
- Payment history: This is the most important part of your credit your credit profile and accounts for almost 35% of your score.
- Amount owned or credit utilization: This is about 30% of your score
- Length of your credit history: About 15% of your score
- Types of credit and new credit
- Credit amount
- Loans including student loans and mortgages
Reasons for having a good credit score
- Good interest rate gives better finance rate when you need to finance a large purchase.
- Makes you pay less over the life of the loan you have taken.
- Gives you more mortgage loan options whenever you need one.
- Helps with renting certain apartments.
- Helps to apply for more jobs and increase career opportunities.
- It reduces financial stress.
- Provides better insurance rates: Insurance rates are tied to your score.
- With a good credit score, you will feel comfortable applying for new credit and can be easily approved.
What to do to make sure you receive a good credit score?
Get your credit report: This is a report that shows a lender how we manage our credits and debts. View your credit report, organize it and prioritize what’s important.
Check what is impacting your score and fix it. Things like late payments, not enough credit, collections, high balances and foreclosures can impact your credit score negatively.
Pay off your loans and credit card balances to increase high utilization.
Keep your credit card usage down
Get someone with an extensive credit history to add you as an authorized user
Importance of a good credit score for a low income earner
- Attracts lower percentage rate: This is the interest on whatever loan you are getting, might be car loan or personal unsecured loan.
- Helps lenders to have good feedback on your credit history
- Helps to fulfill your dreams and keep money in your pocket
- Helps build credibility with prospective employers which can get you a better job
- You save lots of money with access to lower interest rates for your different purchases.
- Helps get a mortgage faster be it ownership or for rental purposes
- Strengthens your financial applications.
In conclusion, managing a good credit score is not always an easy task. The reward of putting effort into building a good credit score is very attractive. Work towards increasing your credit score with little effort and sit back to enjoy the benefits.