A good credit rating, otherwise known as credit worthiness, makes it easier for you to borrow because it shows lenders that you have handled past borrowing responsibly. A poor credit rating tells lenders that you either could not or did not repay money that you borrowed in the past, or that you did not repay it on time. This information makes it more difficult for you to convince a lender to risk lending you money again. The importance of good credit goes beyond making it easy for you to borrow money. Good credit can also help you:
RENT OR BUY THINGS YOU WANT OR NEED. When you want to borrow money to buy or lease something, like a car, creditors make their decision based on many things, and probably the most important thing they consider is your credit history.
SAVE MONEY BY BORROWING AT A LOWER INTEREST RATE. Loan rates are typically determined on the basis of credit history. People with good to excellent credit get the lowest interest rates. People with past or current credit problems tend to pay higher rates.
GET A JOB. If you apply for a position that requires that you handle money, such as a cashier, payroll clerk or bank teller, the employer will want to know that you do not have serious credit problems that could tempt you to steal from the company.
LEASE RENTAL PROPERTY. When you rent an apartment, the landlord wants to know that you pay your bills on time.
OPEN A CHECKING ACCOUNT. Banks will check your payment habits to help determine how likely you are to pay your debts before agreeing to open an account with you.
ESTABLISH UTILITY SERVICES IN YOUR NAME. Utilities, such as phone, electric, gas, heating oil, water and cable TV may waive cash deposits for people with good credit.
OBTAIN INSURANCE AT A LOWER RATE. Insurance companies will check your credit report if you apply for certain types of insurance. Good credit can qualify you for better rates.
Credit is a privilege. If you want to borrow money again, you must protect your credit rating by paying your debts as you said you would. As long as you use credit wisely and don't abuse the privilege, you will have credit as another path to your dreams, particularly your homeownership dreams. If you don't handle credit carefully, your goals will be harder to reach.