When it comes to your financial stability, there’s a certain number that can easily measure your overall identity in the world of finances – Your credit score. This number effectively dictates your overall financial credibility, with banks and loaning companies largely depending on credit scoring companies to properly screen your ability to pay off potential loans. In addition to these, there is also a multitude of reasons why your credit score is important and why maintaining it at a good number is crucial for improving your personal finances. Read on to learn how credit scoring works, why your credit score is important, and what benefits you can get with an optimal score range.
What Is a Credit Score?
Credit scoring is performed by financial institutions to measure the creditworthiness of an individual. But why is maintaining a good credit score important? Most banks and loan companies look at credit scores to determine whether it’s feasible for the individual to take out loans or apply for credit cards without the risk of defaulting and lost revenue for the bank or financial institution.
Your credit score is dependent on numerous factors, including your bill payments history, the loan and credit accounts you currently possess, the amount of unpaid debt you currently have, and whether you have foreclosures or petitions for bankruptcy. With this information, credit scoring companies can determine whether you’re a poor or excellent credit applicant – which makes having a good credit score important for your financial freedom.
However, because credit scoring largely depends on banking and credit history, a large percentage of the unbanked or underbanked population cannot be scored accurately due to the lack of credit transactions. This leads to inaccurate credit scoring that not only leads to failed credit applications but also high-interest rates for loans.
Fortunately, financial institutions have now acknowledged the lack of accurate factors in traditional credit scores. More and more banks and loan companies are now using alternative credit data to better screen credit applicants with information that is readily available even in the absence of a credit history. Alternative credit scoring companies, including FinScore, are now tapping into innovative solutions to broaden the factors of credit scoring. These include telecommunication behavior data usage, and top-up patterns.
Why Are Credit Scores Important?
Credit scores, whether traditional or alternative, are accurate indicators of an individual’s ability to pay off loans and make responsible credit decisions. For a lot of people, maintaining a good credit score may not be one of their top priorities because they don’t plan on getting credit or applying for personal loans in the near future. However, credit scoring doesn’t only affect your ability to get loans, but it can also dictate your ability to secure jobs, properties, insurance, and utilities.
What Benefits Can You Get With Good Credit Scores?
Maintaining a good credit score can benefit you in numerous ways, like opening up credit opportunities that would often be inaccessible if you scored low. Here are just some of the reasons why maintaining a good credit score is important and what benefits you can get with good credit:
Better Chance of Approval for Personal Loans
One of the top benefits of having an excellent credit score is that banks and formal lending companies are more confident in approving your loan applications. Whether you’re planning on taking out an auto loan or a personal loan, you can benefit from a higher chance of approval without any hitches. However, note that an excellent credit score is not a sure ticket to getting approved since financial institutions also consider your outstanding credit and debt.
Higher Approval for Property Leases
Some property owners and landlords use credit scores to ensure the credibility, identity and, trustworthiness of their potential tenants for rental houses. In some cases, credit scores include important data from your leasing history that may dictate your integrity. In the Philippines, you may also communicate with your landlord regarding talks about deposits if your credit score is excellent. Instead of paying multiple months of rent in advance, you can ask for better consideration since you have a good background in paying on time and never missing deadlines – a great reason why you should keep a good credit score!
Better Insurance Costs
Good credit scores are an important factor in getting better-priced premiums for both life insurance and auto insurance. Individuals with excellent credit scores may get special discounts on the price they need to pay for insurance, while people with lower credit scores may need to pay higher premiums for better coverage.
Lower Interest Rates
When you’re applying for loans, your credit score may influence the interest rates that the lending company or bank assigns to your loan account. When you maintain a good credit score, you can get lower interest rates, better terms, and lower financial charges. This means that you can pay off your loans faster and easier, regardless of how much you need.
Access to the Benefits of the Best Credit Cards in the Market
Good credit comes with great opportunities and higher limits for credit cards. With an excellent credit score, banks can approve you for some of the best credit cards they offer that may also entitle you to numerous benefits and incentives. In addition to this, premium credit cards offer the lowest interest rates, giving you better savings and value for money.
Credit Scoring Continuously Evolves to Your Advantage
Credit scoring has been an important part of the financial terrain for years, with financial institutions highly depending on credit scores to judge the financial capabilities of everyone submitting loan applications. As technological advancements happen, credit scoring too has evolved to be more inclusive of untapped populations who are either unbanked or underbanked.
As more and more banks adopt alternative strategies in credit scoring, more people are able to benefit from the financial support that may otherwise be inaccessible to them with traditional banking. With FinScore, populations from all ranks of society are given the chance to be better equipped financially through credit. To learn how to know your credit score or how to better understand the process of credit scoring, you can visit us at FinScore today.