A credit score is extremely important because it helps you borrow money at a lower interest rate. Chances of better interest rates are high when your credit score is good. When your credit score is good enough, you should be able to avail yourself of lower interest rates.
Most of the small loans are not subject to a credit check, and if your credit report is checked, soft inquiries are made, so they do not influence the lending decision of a lender. In most cases, it is presumed that your credit rating is not up to scratch. As a result, you will get money at a high-interest rate.
However, there are some loans, such as personal loans, mortgages, and car loans, paid back over a period of time. These loans cannot be signed off on unless your lender carefully examines your credit report. Without a good credit score, you will certainly find it harder to get the nod for competitive interest rates.
How a good credit score can help you qualify for the best deals
Here are the reasons why it is crucial for you to have a good credit score
1. This helps get the best personal loan deals
Personal loans are unsecured loans, meaning they are not subject to collateral. In case of a default, your lender cannot take back any of your assets to recoup their money. Since the default risk is very high, a lender would not want to assume the risk of lending you money. In order to mitigate their risks, they will charge high-interest rates.
Personal loans are expensive because of their nature. These loans will be paid back in a short period of time, with a repayment length not exceeding 18 months. When your credit score is bad, lenders will be reluctant to lend you money. If they give the nod, you will be charged very high-interest rates.
Therefore, it is suggested that you should try to maintain a good credit rating. With a good credit score, you can easily prove your lender that you had been responsible with your payments in the past. You will also be able to borrow a larger sum. With a bad credit rating, lenders will restrict the borrowing sum and whittle down the repayment length.
2. You can get affordable credit card deals
Some credit cards offer benefits like a 0% interest-free period, higher limits and special offers. These benefits are granted to those whose credit scores are excellent. A 0% interest-free period allows you to settle your balance without paying any interest. This sort of facility is offered who have good income sources and who have built a reputation for managing money responsibly. Your credit score reveals this. When your credit score is good, you will certainly find it way easier to get an affordable credit card deal.
In fact, if you are looking to consolidate your credit card debt, you will need to have a strong credit rating. If your credit score is poor, you cannot have your credit card consolidated. At the time of opening a new account, you should understand the difference between different types of credit cards and then choose the one that best suits you.
3. You can get sound mortgage deals
Instant loans do not require a credit check, but big loans like mortgages cannot be approved without a credit check, and if a lender finds that your credit score is not good at all, you will be turned down for a mortgage. Most of the banks strictly follow their criteria and, therefore, will not agree to approve your mortgage application.
Some lenders are a bit flexible and do not mind you having a poor credit rating. You will have to arrange a bigger deposit of up to 20% in the case of a residential mortgage and 40% in the case of a commercial mortgage. Despite that, interest rates will be quite higher.
If you want to qualify for an affordable mortgage, you must have a good credit rating. However, it does not indicate that you should not research the market. Make sure you get the estimated interest rates before formally putting in the application for your mortgage.
Each lender or bank has their criteria for deciding interest rates. You should always try to pick the one that offers the best deals.
4. You can get more affordable deals on car loans
Whether you finance your car from a car dealer or a personal loan, it is vital to have a good credit score to qualify for an affordable deal. Do not forget that these loans are subject to a down payment, normally up to 10% of the sticker price of your car. In case of a bad credit score, your lender will require you to have a larger deposit and clear the debt in a short period of time.
If your credit score is not stellar, you should try to improve your credit score. This will help you get car loans at the most attractive interest rates.
Do you need a good credit score for short-term loans?
Small loans like payday come with very small repayment lengths. In most cases, it does not exist for more than 15 days or a month. It is not necessary to have a good credit report as they are aimed at subprime borrowers.
However, you will need to have a good credit score for other shorter-term loans. These loans include all instalment loans. Having a fair credit score is better than a bad credit score, but it does not guarantee that you will get the best deals.
The final word
Although there are some types of small loans you can get without a credit check, there are still some loans like mortgages, car loans, personal loans and credit cards that you cannot get approved without a good credit score.
With the help of a good credit file, you can get the best and the most affordable deals. Focus on maintaining your credit health so you do not face difficulty qualifying for a loan.