So, you want to obtain a mortgage for your first home purchase, you want to purchase your first car, you are trying to obtain insurance, rent an apartment, get a loan from the bank, open a line of credit, or very important, get a credit card. A good or great credit is needed to take full advantage of all these. Credit is a vital aspect of personal finance. Being able to manage borrowed money properly will ensure financial institutions will be on your side when you approach them. You credit history and credit score are both significant, and in this series, we will discuss practical ways to build this organically. This video will provide a good idea of credit and why it is even relevant.
If you do not take care of credit, it can be evil and actually destroy your financial standing. But when handled properly, then believe me, credit is awesome!
Some of the benefits of good or great credit include:
1. Providing you lower interest rates on loans and lower APRs on credit cards,
2. Improved chances of having your loans even approved.
3. Significant savings on interest rates on loans. For example, a 2% difference in interest rate over the years can practically save you tens of thousands of dollars over the lifetime of a loan. Imagine a 20-year fixed mortgage of $400,000 at 4%, ideally, this will cost you a total of $580,000 over 20 years. However, imagine this was obtained at 2% interest rate instead. With just 2% difference, you would be paying $485,000 for the same mortgage over 20 years. That’s a huge $95,000 difference over those years.
4. It also provides you better terms on different loan products, even better houses and real-estate deals.
5. You can also get fairer car insurance rates and lower insurance premiums.
6. Do you know some employers also check candidates' credit history? Even insurance companies use it as a factor to determine your rates.
Your credit history and score are prepared by the credit bureaus - Equifax, TransUnion and Experian. What is considered a good or great credit score varies significantly. However, there is an average band.
NOTE: The content in this video is accurate as of the posting date.
Also, this is not an investment or financial advice. All investing and financial activities involves risk and trade offs, including the possibility of losing the money you invest. Please consider what makes sense for your current situation, your income level must be factored when approaching investing and financial planning. Perform your own extensive independent research before deciding on what works for you. This is only meant to educate and help kick start your own personal research.
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