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Improving your credit score is not an easy thing to do.
First, you need to understand how credit score models work. Then, you need to make the right decisions to lower the impact on your credit score. And finally, you need to keep monitoring your credit score to make sure there are no errors.
A lot of people don’t want to deal with their credit score because they think it is not worth the effort.
However, your credit score is a great tool to build wealth. It allows you to save money by spending less of it on the things you need. So, here are the 5 reasons why improving your credit score is a great idea.
Statistics from Experian
1 – Pay Less Interests On Your Loans
Improving your credit score can help you save big bucks on loan interest rates. In other words, the higher your credit score is, the lower your interest rates will be.
Taking A New Loan
Every time you take a new loan, the lender will check your credit score to decide whether to approve or refuse your application and to determine your interest rate. Your credit score helps determine the probability you have to pay your loan on time. The higher your credit score is, the lower the chance you will pay your bills late.
Refinancing Your Current Loans
The same thing applies to your current loans. If your credit score improves after you get a loan, you can ask your lender to review your interest rate. Also, you can check with other lenders to see if they can offer lower interest rates. That way, you can save money by refinancing your current loan.
Interest Rate Differences
You might think that improving your credit score is not worth your time because the interest rates won’t change that much. But actually, a small variation between interest rates can save you a lot of money.
For example, if I have a 30-year mortgage of $350,000 with an interest rate of 4.61%, at the end of the term, I will pay $446,500. However, if my interest rate was 4.34%, I will end up paying $426,500. So, with just a difference of 0.27% on my interest rate, I will save $20,000.
2 – Negotiate Your Interest Rates
You should always negotiate your interest rate with your lender no matter your credit score situation. The worst that can happen is for the lender to decline your offer politely. So, no big deal.
If you decide to negotiate with your lender, it is always a great idea to have numbers to prove your arguments. For example, you can go to multiple lenders and ask what interest rates they are offering to their clients. Your goal should be to reduce your interest rate as much as possible.
The higher your credit score is, the more leverage you have when negotiating.
3 – Stop Paying High-Security Deposits
Another great advantage of improving your credit score is to stop paying high-security deposits. Those high-security deposits are required by several service providers when you have a bad credit score. It allows them to make sure that they will get paid even if you are late on your payments.
Security deposit can range from $100 to $750. It is a lot of money to put down at once.
For example, you may have to pay a security deposit if you want to rent an apartment or open a new phone plan. In general, any monthly subscription service will require you to pay a security deposit if you have a bad credit score.
4 – Reduce The Price Of Your Insurance
Before giving you a quote, your insurance company is looking at your credit score. They want to determine the likelihood of you to cause an accident or to commit insurance fraud.
Several studies show that people with low credit scores are more likely to have an accident or commit insurance fraud than people with a higher credit score. That is why insurance companies will charge more money to people that have a low credit score. Meanwhile, some insurance companies will even refuse to insure people with bad credit scores.
5 – Get Better Credit Cards With Better Perks
Credit card companies are looking at your credit score before approving or declining your credit card application. The lower your credit score is, the higher your odds of being declined are.
There are different types of credit cards. Some will give you cash-back while others will give you points. Credit cards are a great way to make more out of your money. However, if you are not following a specific strategy, credit cards can be dangerous for your financial health.
For example, you can easily make hundreds of dollars a year by using the right credit cards for your daily purchases. Some credit cards are giving you up to 5% on specific purchase categories and a lot of perks like travel insurance or lounge access.
Keep in mind that the higher your credit score is, the better the credit card rewards you will get.
In conclusion, it is always a great idea to keep improving your credit score. It will allow you to save a lot of money so you can make more out of it. So, are you ready to improve your credit score?