Forward Bank
Why Good Credit Is Important
July 30, 2021
In a world that's moving away from cash and becoming more dependent on credit, you've likely heard financial institutions talk about the importance of credit scores. Whether it was in the context of using a credit score as part of your loan approval or how to improve a credit score, it's a topic that's often discussed in conjunction with borrowing money.
But what is a credit score? Why is it so important? And how do you find out what your credit score is?
What is a credit score?
A credit score is a number, from 300 to 850, that potential lenders use to help determine your creditworthiness based on your credit history. Credit bureaus determine your score by applying a mathematical algorithm to your credit history: number of open accounts, total levels of debt, and repayment history, and other factors. You can receive one free credit score report per year from each of the credit bureaus (Equifax, Experian, and TransUnion).
The general rule is that the higher your credit score is, the more qualified you are to repay loans.
The Importance of a Good Credit Score
Having good credit (and a higher credit score) informs lenders you're more likely to repay a loan, which makes them more likely to lend money with more favorable terms like lower interest rates, higher amounts and lower fees. A person’s credit score may also determine the size of an initial deposit required to obtain a smartphone, cable service or utilities, or to rent an apartment.
In short, having good credit allows you to unlock potential savings and benefits when borrowing money.
Advantages of Having a Good Credit Score:
- Lower interest rates
- Better terms on loans
- Increased accessibility to credit cards
- Improved business loans availability
So, you might be asking yourself, “What is a good credit score to have?” Below are the ranges of credit scores and how they rank.
- Poor: 579 and below
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Exceptional: 800 and above
How to Improve Your Credit Score
If your credit score isn't as high as you'd like it to be, there are ways to improve your score: pay your bills on time, up your credit line, and don't close a credit card account even if you're not using it. Contact us with questions about your credit history or score.
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