A Good Credit Score Can Open Up Many Avenues for Loans

Many people may be aware of just how important it is for them to maintain strong borrowing habits and keep their debts as low as possible, but what some might not know is that their doing so can have a massive positive impact throughout many aspects of their financial lives.

A large number of borrowers might simply maintain healthy financial practices as a means of keeping their personal dealings in order and avoid late payment penalties including large fees and higher interest rates. However, all those good behaviors will, at the end of the day, also put them in a better position with regard to their credit scores. That, in turn, shows lenders that they are extremely responsible borrowers and serves to significantly increase their credit scores. A good credit score, in turn, can help borrowers to gain access to the most beneficial terms available on any types of loans they might seek in the future.

The good news about this reality for smart borrowers

Many consumers may know that with strong credit scores comes better access to loans in the future. This is because a credit rating is essentially a three-digit summary of how responsible a borrower has been in dealing with credit in the past and therefore how likely they will be to manage a new account effectively in the future. When loan applicants are considered to be less risky, they are therefore more likely to receive approval on any request for financing they might make. Credit scores run from 300 to 850 in general, and usually those who are in the 700 range will have little difficulty in obtaining almost any type of loans they want.

But the added benefit of these high scores, in general, is that borrowers will also gain access to the best possible deals on those agreements. That usually means they’ll pay lower interest rates and far fewer fees than they might be able to receive if their borrowing histories had been tarnished, which in turn, will likely only help to improve their ratings down the road because they won’t have to carry as large a financial burden when dealing with those debts.

For these reasons, it might be wise for those with good scores who are seeking new accounts to shop around a little bit before they commit to any single account. Weighing a number of options to find the most affordable financing type they want may help them to be in a better position with regard to all aspects of their finances going forward.

Some things to look out for

However, it might also be important to keep these rate shopping efforts fairly concentrated, as one aspect of a rating — comprising 10 percent in all — involves the number of times a person has applied for credit in the past several months. While there is some flexibility with regard to applications for the same type of loan within a shorter period of time (this is what is considered “rate shopping”) in general, lenders and credit scorers consider these efforts to be evidence that a person might be having cash flow problems, even if that’s not necessarily the case.

It might also be important for borrowers to keep in mind that, in general, taking on a new account will necessarily cause their scores to drop somewhat, as the average length of time people have had each of the accounts in their names makes up another 15 percent of their scores. This will obviously take a bit of a hit when they add a brand new account, and unfortunately only time will serve to repair the damage that can potentially be done here. However, the longer they’ve had all their other accounts open, the less impact bringing on the new one will obviously have.

One aspect of maintaining good credit that many borrowers might not necessarily always think of, though, is the importance of carefully monitoring their credit reports. Taking the time to order copies of these documents from each of the three major credit reporting bureaus at least once each per year may allow them to determine whether there are any unfair markings which might be having a negative impact on their standings overall. If, in the process of checking these reports over, such an entry is discovered, it might be wise for borrowers to work with a credit repair company as a means of potentially sorting out the issue. These companies may be able to remediate any potential issues more quickly than the borrowers might have been able to accomplish on their own, and in doing so allow them to return to where they should be, both in terms of their finances and their credit ratings overall.

Posted in Credit Score
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