What is the Importance of Good Credit?

Let us face it, for any business out there; the business itself will choose profit over risk any day. Lending institutions are no different. Lenders rely on 3 major credit reporting agencies to determine how much of a financial risk you are to them, the higher the risk, the less chance that they will want anything to do with you. Any time you get anything on credit, regardless as to if it is a cell phone, internet, cable or even electricity in your home, these companies send in data about your ability to pay to these reporting agencies, which in turn create an entire database about you and your financial habits. It is from this database that your credit score is created.

What this means, is that if they cannot make a profit, then why should they loan money to you or issue a credit card. If you have a current credit card and are paying off the full amount at the end of each month, then the company is not making any profit. The next company just may look at this; realize that even though you have a good credit score, they cannot give you a card because they will not make any profits.

There is literally an entire list of possible pros and cons about keeping your credit score up. A credit card company may be more willing to give a card to someone who stays in perpetual debt, meaning you only pay part of your total balance therefore making them more profit. While at the same time, an auto loan lender may give you bonus points for living in the same address for a long period of time.

So not only is there the standard score from which lender and credit card companies base there decision off from, they may also add or deduct points based on any number of possible variables in order to determine how much of a risk you are to them, and how much profit they can make from you.

No matter how you look at it though, it is always important to maintain a good credit rating because the last thing anyone wants is when their credit is finally needed for something important, they cannot get it because of some slip up several years earlier. Basically, the higher your score gets, the less that the point deductions would affect you depending on the lender or credit card company.

Every one has heard of signature loans, where someone can go into a bank and basically sign for the loan without having to provide a proof of income or any other possible requirements that the average person needs to provide. Anyone can get their credit score up to this point; you do not have to be a millionaire. Just like these signature loans, the higher your credit rating is, the less chance that point deductions or bonuses will affect you when you really need the money for your new home or car.

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