A good credit score generally translates into better credit card offers, low rate auto loan and better auto loan deals. A person with a 700 credit score could save $79 a year in finance charges by increasing his score 30 points. The Providian (now Washington Mutual Card Services - a leading credit card provider) estimate assumes a credit card balance of $4,200 and an interest rate of 11.4 percent.
Much bigger savings are possible on mortgages. Someone with a 620 credit score would be charged about $1,000 a month for a $150,000, 30-year mortgage. If you improve your credit score 100 points to 720, that same individual would pay $866, a difference of $134 a month, or $1,608 a year. The higher credit score would also yield fewer or no points and a smaller down payment.
These estimates by Providian provide examples of why having a high credit score is crucial in maintaining your financial health. Someone who is forced to drive a car with interest rates in the 14 or 15 percent or paying a subprime loan on his house, about 3 or 4 points higher than an excellent credit score are feeling the pain of having to pay high finance charges.
That's why it's important to improve credit score if your credit is low.
Why it is Important to Have Good Credit Score
The advantages of having a good credit score are obvious and many. It can get you loans faster. Scores can be delivered almost instantaneously, helping lenders speed up loan approvals. Today many credit decisions can be made within minutes. Even a mortgage application can be approved in hours instead of weeks for borrowers who score above a lender's “score cutoff”. Scoring also allows retail stores, Internet sites and other lenders to make quick car loan decisions.
You also have more credit available. Lenders can approve more of your loans and at higher amounts.
Also, with good credit scores, you can also be considered quicker when you are looking to rent a house or an apartment and in some states, better auto insurance rates. If you are a businessman, having an excellent and substantial credit score helps your business. It's a fact that your credit score makes or breaks your business. If you need capital and your score is around 500, you will not likely get any loan that you need as infusion of capital.
And without a good credit score as an individual will relegate you to public transportation and cheap, old used cars if your credit score is below 500. No lender will trust you for use of his money.
Paying your bills on time is a must if you want to have a good credit score. Building your credit meanwhile takes time. There is no shortcut to it. A good credit score in the 720 or higher range takes many years. But it's worth it in the amount you would have saved on interest and finance charges.
The table below shows the actual APR depending on a borrower's FICO score for a new auto loan :