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Why is credit history important?

why is credit history important

Some of you might be avoiding various forms of credit.  You might be thinking that life will always be better if you do not owe anyone money, however, this thinking is false.  In fact, your life will be a lot better if you have a credit history.  The better you manage your credit, the better options will be available for you.

Are there things in life that require credit?

The answer is there are.  They do not require credit per se but instead require you to have an outstanding credit score.  Some of them are:

  • Acquiring a home.
  • Getting a brand new car (on credit)
  • Renting a house

Most of the activities above require that you have a good credit standing.  The higher the credit score is the better privileges and considerations are made available.  If you are pretty good and responsible, you can even attain the golden credit score of FICO 820.

How do I start having credit?

The first thing you have to do is to obtain the basic entry level credit which is usually a starter credit card from your bank.  Don’t tell us that you do not even have a bank because you should have.  Your bank will assist you on how to avail their credit card options and what is ideal for you.

If you are paying rent, internet, and other utilities then you are already having credit.  By paying them on time you will be assured of a good credit score.  If you have frequent delays then that means you are already accumulating bad credit score even if you do not know it.

What are the privileges of having good credit?

If you maintain a good credit score you will surely get an easier life.  Here is some example.

Home Mortgage. You will have a bigger chance of getting your dream home and if you have a FICO of 760 or higher then you get the best home mortgage deals.  You will enjoy the lowest interest rates and monthly payments.  This means tons of saving over the life of your home loan.

FICO requirement for various loans varies but the higher the score the better the deals are:

  • VA loan or those from the Veterans Affairs has no minimum score and the
  • Minimum FICO score for an FHA mortgage is 500 with 10 percent down
  • USDA mortgage requires a 640 FICO score
  • Conventional mortgage from Freddie Mac or Fannie Mae requires 620 FICO.

If you have a low credit score the usual penalty for this include higher downpayment and interest rate.  Always remember to keep your credit score good.

Car Loan. Imagine if you have a high FICO of 750 and above, you can own a luxury vehicle with zero down at a very low-interest rate.  Credit scores around 750 allow you to have prime deals, however as your score gets lower, the choices also get lower.  Imagine if you have the means to buy a car but you do not have a standing credit history, this also means higher interests and down payment. The average rate on a car loan is around 5.2 percent as of February 2018.

In Conclusion – Why you need credit history?

The answer to this question is very simple.  If you want to enjoy a better life and avail the opportunities out there, then you should have a good credit standing.  You should also remember that even if you have a long credit history and it’s bad, that is as good as having no credit.  Maintain a good credit standing.  Always pay your bills on time.

Read:  “How do I maintain a good credit score?

Reference: The Mortgage Reports

 

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