Importance of Having a Good Credit Score
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Transcript of Importance of Having a Good Credit Score
The importance of having a good Credit Score is of paramount significance. It creates a ripple
effect; therefore any individual having a good Credit Score has the opportunity of furthering their
score much more easily than a person with a relatively low score. Here is a small illustration:
Assume you have got a good credit score, i.e. above 700 on a maximum possible 850
FICO Score. As a result you get to enjoy more credit sanctions which if invested wisely
would result in more income for you. As a result you can apply for more credit which if
approved you again invest in some lucrative business or say capital investment which you
rent out or any other kind of investment where you get to receive a fixed stream of
income. All these money you use to pay back your existing debt and keep the rest in bank
accounts, after drawings obviously. This is great – capitalism rocks and the cycle
continue! Moreover since your income is greater than your expenses (capital repayment
plus interest on the capital), you keep on getting not only richer but also your credit score
improves significantly; this means you get to borrow money at a lower interest rate in the
future because of your brilliant performance.
Now on the other hand:
If an individual’s Credit Score has been lower than the average in their area, city or state,
i.e. below 650 on a maximum possible 850 FICO Score, then we would have seen a
reverse effect. Any debts that they owed would automatically be tougher to pay. If the
economic situation did not improve significantly, for instance, then we can assume the
net income would not improve drastically for that person amongst other factors. Now if
they went to get some credit for investment purposes, it would not only be difficult to
obtain but might not be granted at all. Not to mention the higher than average interest rate
if the loan was granted. Therefore, it becomes difficult to attain higher profits from their
investments compared to the person with better credit score – the climb is steeper for
them.
Although we have portrayed a much grimmer picture for anyone with low score, that does not
mean they cannot alleviate themselves from this situation. In general, they face a greater
challenge than the rest of us but remember there are billionaires with low credit score too. Just
apply the basic of maintaining a good score which is to pay debts in full in their due time.