Importance of Credit Essay

1282 Words Oct 16th, 2015 6 Pages
The Importance of Good Credit
Have you ever been turned down for a loan or an apartment lease and wondered why? It could be due to your credit history. Let’s face it–our credit says a lot about who we are. It is our financial report card, and can affect many aspects of our lives. Professional credit counselors at ClearPoint Credit Counseling Solutions agree that having a good credit history is imperative to leading a financially fit life.
What is Credit?
Credit is defined as a contractual agreement between a lender and a borrower in which the borrower assumes something of value, and agrees to repay the lender on a future date.
How does it work?
When you apply for credit (say a loan or a credit card), the lender has to decide if you
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Credit reporting makes it possible for stores to accept checks, for banks to issue credit or debit cards and for corporations to manage their operations. Depending on your credit score, lenders will determine what risk you pose to them.
According to financial theory, increased credit risk means that a risk premium must be added to the price at which money is borrowed. Basically, if you have a poor credit score, lenders will not shun you (unless it is utterly awful); instead, they'll lend you money at a higher rate than the one paid by someone with a better credit score. The table below shows how individuals with varying credit scores will pay dramatically different interest rates on similar mortgage amounts - the difference in interest, in turn, has a large impact on the monthly payments (which pay off both interest and principal). As you can see, your credit score can affect your mortgage in many ways:

Read more: The Importance Of Your Credit Rating
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Why is good credit so important?
By Erin Peterson •
Today's economy runs on credit. If you want to get a mortgage loan for a house or a student loan to pay for college, or if you just want to put your lunch on a credit card, a company is extending credit to you.
Your creditworthiness is defined by your three-digit credit score and is the key to your financial

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