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How Important Are Credit Scores?

By Derek Brown
Published: Thursday, May 13th, 2010

Simply put, your credit scores determine whether you would be given higher or lower interest rates. To elaborate, lenders look at a person’s credit scores in order to gauge if you have the capability to pay or not, and from that appraisal, lenders then decide how high or high low the interest rates they would give you would be, or you would be allowed to get a loan in the first place. In other words, scores are also a way for lenders to protect themselves from losses that may be gained from bad debts, and to also determine who among their customers are most likely to bring in revenues, and who would most likely fail to pay back their loans.

Your three-digit scores are very vital, because how high or how low it is would pretty much determine the direction of your financial life. Most people’s scores range from around 600 to 700. This is normal and very much acceptable, but a healthier number would be that of above 700.

People having scores above 700 are given premium by lenders and are usually given lower rates. Those having scores below 600 are in high risk of being charged higher interest rates. Let’s say you intend to get a loan but unfortunately have low scores. This would mean higher interest rates charged on you. If worse comes to worse and your scores are very low, you might not even be allowed to get a loan. You might want to buy a house, an estate, a car, apply for any kind of loan. How high or how low your scores are would ultimately allow or prevent you from doing so.

It is therefore very important for you to constantly monitor your credit scores. You may do so by checking on the three major credit bureaus – TransUnion, Equifax, and Experian. If you are just starting out with a clean slate, you may have an advantage – you still have a clean history as far as your credit life is concerned, and all you have to is to maintain this by paying your bills and loans on time, and not spending more than what you actually have.

For those who have been longer in this, vigilant monitoring of your credit scores should not be taken lightly. If your scores go out of hand, it may take a long time to recover, not to mention, it will taint your reputation.

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