What’s all this about a great credit score? Why is it so important? You may know that you need to work on your credit, but perhaps you don’t really understand the why of it all. Maybe it’s something you have yet to work on. Here are some reasons why lenders may put more emphasis on a good credit score than one would want them to:
They want to know if you can pay on time
One of the most important reasons why a lender cares about credit scores is because they’re looking for the ability to pay on time. They don’t want to lend to someone who has a track record of paying late. As challenging as it may be to pay on time, depending on your income and paycheck, when budgeting, make sure you’re prioritizing your credit card and loan payments.
This will reflect on your credit score and impact any future loans that you may need. If there’s one area of your credit health to emphasize and take care of, it’s on-time payments. Start working on it today!
They want to be sure you’re financially responsible
What is a good credit score? For lenders who are checking into your credit habits, they’ll typically want to see excellent but are happy with a good credit score. A good credit score shows lenders that, for the most part, you pay on time, you take care of your bills, and you can cover the costs of paying off a loan. While not as great as an excellent credit score, which could be attained through die-hard dedication to paying off your CCs quickly, it proves your ability to be financially responsible.
They want to see how much debt you have to pay off
If you’ve been paying off different credit cards and loans, this tells lenders that you can pay off your debt, whatever it may be. However, if you’ve been opening up a lot of credit cards and have outstanding debt exceeding credit card limits, this doesn’t look great to lenders. Too much debt can be a red flag to lenders, telling them that you may not be that reliable when it comes to getting their money back.
So, if there’s one area where you may want to work on your finances, it’s with your debt payments. Perhaps now would be a good time to start using reliable budgeting software that allows you to set aside the money needed for your CC payments. Additionally, if you already have quite a bit of debt to pay off, then consider taking a break from taking out any more loans until you have it paid off.
They’re looking for history
Lenders want to see a good history. They want to see the length of time that you’ve been working on your credit as well. You may have a couple of years of building good credit, but for many lenders, a couple of years of good financial habits doesn’t yet provide them with the satisfaction that you’re reliable.
While this could be frustrating if you’re a young person just getting started on your way to financial stability, as you continue working towards great credit scores, you’ll be sure to have the kind of financial health that wows lenders. A good idea is to start a savings account today so that you always have an emergency fund that makes it easy for you to reach your financial goals and cover CC bills in the future.
In Conclusion
As you start looking closer at your financial health, take time to look at your credit scores. A healthy credit score is important in more ways than one, especially when it comes to getting loans in the future. You want to make sure you’re impressing lenders, so start working on your credit score today for better results tomorrow.
