4 reasons to care credit ratings

Some may say that living a cash only lifestyle and dismissing the relevance of a score that is dependant on measuring credit management is the more healthy way to go.

However, your credit report and score have become more that just a measurement of your credit usage. It can now also be a determining factor for some employment opportunities, utility and insurance rates, and the interest cost you will pay to refinance or borrow for things like a home or car. Where your score lands on the credit score rating scale matters. Regardless of your inclination to live on cash or credit your credit score is becoming the key that can unlock doors when you most need it.  

1. A good credit rating means you will pay less to borrow money. 

Even with the best intentions, budgeting, and expense control you may need to borrow money at some time in your life. For example, purchasing a house will typically require some amount of borrowing for most people. The amount of interest you pay on a home loan will make a dramatic difference over time. Your credit rating will determine what rate you are offered.  

Example: $50,000.00 loan for 30 years fixed rate

At 7%: $332.00 monthly payment and a total of $69,754.45 interest paid

At 5%: $268.00 monthly payment and a total of $46,627.89 interest paid 

2. A good credit rating is becoming your character reference.

The days of having your minister, boss, local sheriff, and even your mom vouch for your character are gone. Today, we need to accept that in more cases then naught our creditworthiness is judged by our credit score numbers.  

Keep in mind that the reach of credit scores includes rates you could be quoted by utility and phone companies as well as your ability to rent an apartment.  

3. A good credit rating is like a safety net during economic hardship.

You may justifiably live on a cash basis, but the reality is that economic hardship can hit anyone today. Many people are faced with circumstances they never thought they would have to deal with. In the event you need to borrow money having a high credit rating could be the safety net you need in order to get access to cheap money for a short period of time.  

4. Credit score rating scale: a few points makes a big difference.

The Fair Isaac Corporation maintains a credit score rating scale of various creditworthiness categories. Within each category is a range of scores. For example, on the credit score rating scale there are categories listed as 600-649 (12% of us), 650-699 (15% of us), and 700-749 (18% of us). You’ll have a better chance in receiving better rates in higher categories. As you can see you could be in a position where only a few more points could put you in a higher category.

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