When you apply for credit, and your application gets approved, it establishes an agreement between you as the borrower and the financial institution as the lender or creditor. The agreement states that you agree to repay the amount you borrowed under the terms of the contract signed. You do this numerous times throughout your life. That is why a good credit score is important.
Banks are the most common lenders because they are in the business of issuing loans and profiting from the interest charged on them. But other types of companies can be lenders, such as car dealerships, credit card companies, student loan agencies, personal loan agencies, and mortgage companies.
Lenders Are Cautious of High-Risk Borrowers
They’ll want to review your credit history to see if you’re trustworthy when it comes to fulfilling your financial obligations. If you have a history of paying your debts without falling behind, you’ll be considered a low-risk applicant. Then your application will likely get approved.
It is essential to focus on the repayment terms of the loan contract. Even if you get approved, it doesn’t mean the terms are perfect. Your credit profile can still influence your interest rate and loan term limit. A better credit history means you’ll have better repayment terms with a lower interest rate.
Remember that lenders can charge almost any interest rate they want. Credit cards and personal loans, for instance, could have an APR of 80% to 90%. That means you’d be paying back almost double the loan amount because of the added interest.
This is Why a Good Credit Score is Important
You need to take your credit seriously. Nowadays, you can lose more than a loan opportunity if you have bad credit. Employers are starting to reject job applicants for having bad credit scores too. It’s kind of strange because how is somebody supposed to pay their debts if they cannot get a job? But that’s the way it works now.
Whenever you owe money to some person or company, it can influence your credit. Your payments to insurance companies, credit card companies, mortgage companies, utility companies, and even cell phone carriers will keep your credit high. But if you were to miss just one payment to any of these companies, your credit rating could be set back for years.
A bad credit rating can almost feel like a jail sentence. It ruins your chances of purchasing a home, buying a new car, and getting hired for a job you’re fully qualified to perform. Does this seem like a good enough reason to take your credit profile seriously?
The Value of Good Credit
Have you always dreamt about purchasing a luxury car or electric vehicle? It would certainly make you feel rich if you were to purchase a high-end car. But do you need to be rich to purchase one? If you have good credit, you can purchase a luxury car with a loan just like any other car. Still wondering why a good credit score is important?
Imagine being able to make your dreams come true by purchasing a 2022 Porsche Panamera for $425 per month. No car dealership expects you to pay the full price of the car in cash. They would prefer that you obtain a loan because the dealership and the lender can profit from the interest payments. All you need is good credit to get approved for such a loan.
What poor people don’t understand about rich people is that they spend money on credit too. The difference is rich people can afford their monthly payments without struggling whatsoever. And they don’t purchase these luxury items because they’re necessities to them. Instead, these are items purchased for pure pleasure and vanity.
If you care about the American dream and all that it stands for, you’ll need good credit to make it a reality for yourself. Good credit can earn you a loan for your dream home, higher credit lines on your equity, and higher limits on your credit cards.
Have you ever heard of wealthy people who have unlimited credit on their credit cards? These are people with a long and successful history of paying off their massive debts without missing any payments. That is the power of making payments on time and keeping your credit score high.
Rich people can usually get approved for credit cards with no more than a 3% interest rate. Since creditors trust rich people who have good credit histories, they don’t need to charge them high-interest rates. They trust the payments will be made on time.
Lenders Prefer Lending to the Rich
Lenders prefer clients with good credit histories because they’re less likely to default on their credit accounts. It is the same with mortgage companies, banks, credit unions, and car dealerships. People with good credit are always treated better than people with bad or questionable credit.
In other words, someone with good credit will be offered better deals on loans than people with bad credit. You’d think it would be the other way around because people with bad credit don’t have a lot of money. And yet, those people are the ones who have to pay higher interest rates. It doesn’t make any logical sense.
However, if you think about it from the lender’s perspective, they are running a business and need to make money. A rich person doesn’t necessarily need a loan, so they wouldn’t take out a loan if it has a high-interest rate. Only people who are desperate for a loan will do that, which would be poor people. That is who the lenders really make money from.
You don’t need a million dollars in your bank account to be considered rich. If you have good credit and a stable income, you are already considered rich by society’s standards. Therefore, your primary goal should be to focus on establishing a good credit score. Reserve your secondary goal to making a million dollars.
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