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Importance Of Credit Essay

1298 words - 6 pages

The Importance of Good Credit
Have you ever been turned down for a loan or an apartment lease and wondered why? It could be due to your credit history. Let’s face it–our credit says a lot about who we are. It is our financial report card, and can affect many aspects of our lives. Professional credit counselors at ClearPoint Credit Counseling Solutions agree that having a good credit history is imperative to leading a financially fit life.
What is Credit?
Credit is defined as a contractual agreement between a lender and a borrower in which the borrower assumes something of value, and agrees to repay the lender on a future date.
How does it work?
When you apply for credit (say a loan or a ...view middle of the document...

Why Your Credit Rating Is Important
When you apply for a credit card, mortgage or even a phone hookup, your credit rating is checked. Credit reporting makes it possible for stores to accept checks, for banks to issue credit or debit cards and for corporations to manage their operations. Depending on your credit score, lenders will determine what risk you pose to them.
According to financial theory, increased credit risk means that a risk premium must be added to the price at which money is borrowed. Basically, if you have a poor credit score, lenders will not shun you (unless it is utterly awful); instead, they'll lend you money at a higher rate than the one paid by someone with a better credit score. The table below shows how individuals with varying credit scores will pay dramatically different interest rates on similar mortgage amounts - the difference in interest, in turn, has a large impact on the monthly payments (which pay off both interest and principal). As you can see, your credit score can affect your mortgage in many ways:

Read more: The Importance Of Your Credit Rating
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Why is good credit so important?
By Erin Peterson •
Today's economy runs on credit. If you want to get a mortgage loan for a house or a student loan to pay for college, or if you just want to put your lunch on a credit card, a company is extending credit to you.
Your creditworthiness is defined by your three-digit credit score and is the key to your financial life. Good credit can be the make-or-break detail that determines whether you'll get a mortgage, car loan or student loan. On the other hand, bad credit will make it more difficult for you to get a credit card with a low interest rate and it will make it more expensive to borrow money for any purpose, says Liz Pulliam Weston, author of "Your Credit Score."
But even if you're not in the market for a loan, good credit can have a major impact, Weston says.
"Your credit information can be a factor in whether or not you can rent a nice apartment, how much you pay for insurance or whether or not you can get a job," she says. Landlords, insurers and employers frequently use credit information as a litmus test to see if the people they are dealing with are reliable and responsible.
Bad credit can suggest you're a risky bet. While bad credit may only show the details of how you deal with debt, some will extrapolate the characteristics from your financial life to other situations and assume that your bad credit implies that you may be just as irresponsible driving a car, taking care of an apartment or showing up for a job, Weston notes.
Good credit can signify that your financial situation -- and...

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