Credit scores play a major role in our financial lives and the ability to achieve our financial goals. After all, a good credit score can gain you access to lucrative and attractive financing offers that you wouldn’t get with bad credit. To learn more about what good credit is exactly, why it’s important, and how good credit can help you plan the future you want, keep reading.
Credit scores in Canada range from 300 to 900 and the higher your score, the better (for more information about Canadian credit score ranges, click here). Within this range, 650 is the minimum credit score requirement to get approved for the majority of loans. Furthermore, 700 or higher is considered good credit and 800 or higher is considered excellent credit. Individuals with credit scores of 700 or higher tend to be favourable loan candidates in the eyes of lenders.
Credit scores have a significant impact on whether or not you will be able to achieve your financial goals. The higher your credit score is, the more impressive you will appear to lenders thereby opening up more opportunities. The majority of lenders consider credit scores before approving financing, especially for car loans and mortgages. If your credit score is good, securing financing won’t be an issue.
Good credit is an important part of achieving your financial goals, however, there is a tradeoff. Taking on debt you can’t afford, living beyond your means, or even sacrificing your lifestyle for good credit is never a good idea. You want to have good credit without having to sacrifice other aspects of your life. Creating the life you want and having good credit can exist in harmony.
As we explained above, good credit shouldn’t be the be all end all of your life. But, understanding how credit can affect your life in the present and the plans you have for your future is an important building block in creating the life you want.
Here are some of the most important ways good credit can help you plan for your future.
The Mortgage You Want
A home is likely the largest, most expensive asset you will purchase in your life, which is the same for most other consumers. For this reason, lenders are particularly strict with credit scores when it comes to mortgages. With good credit, you will not only be more likely to get approved, but you’ll also secure a better deal
An Affordable Car Loan
Second to a house, a car is typically the largest asset an average person will purchase in their life. Since it is challenging to buy a car outright, most rely on securing a car loan to obtain the car they want. A car is usually the first asset an individual will buy, so it’s important to use credit cards and other finances responsibly to ensure securing a car loan is possible.
While it is entirely possible to get a car loan with bad credit, there are a lot of additional challenges such as higher interest and larger down payment. On the other hand, if you have good credit, you can get the car you want without the extra costs. In addition to a cheaper and easier to get car loan, individuals with good credit often secure better car insurance rates. When it comes to good credit and cars, you could potentially save a significant amount of money.
Lower Interest Rates
Interest is the price you pay for borrowing money. The better your credit, the lower your interest rates will be. In fact, there is practically a direct correlation between your credit score and interest rate! Having less interest is a huge advantage because you’ll repay your debt faster and pay less overall.
In the event that you ever need to take out a personal loan or obtain some extra financing, a higher credit score will help you out too. Usually, this kind of financing is used for an emergency or unexpected expense. Getting approved easily and having a lower interest rate will make these kinds of sticky situations pass with little complications.
A Dream Job
This one may come as a shock – employers sometimes check credit scores too. Although, an employer credit check won’t come out of the blue because they require your permission first. That being said, it is still entirely possible that an employer could check your credit which could make or break your chance of getting hired. Of course, with good credit, surprise employer check won’t be an issue.A Less Stressful LifeHaving good credit opens up a lot of doors for individuals financially which leads to other non-financial opportunities. On top of that, good credit helps people obtain and preserve more money and make better financial decisions for themselves. Finally, money touches nearly every aspect of our lives. Being able to access and manage it easily makes life generally less stressful.A Debt Free RetirementIf you’re like most, you’re picturing your retirement to be stress-free after a life of… well… stress. One predominant stressor you won’t want to deal with is managing debt in your retirement. With good credit, you get lower interest rates which makes debt easier to manage and pay off. For this reason, going into retirement debt-free is easier with good credit.
Good credit can take you a long way financially which has an immense impact on other facets of your life. As we saw, good credit can get you access to car loans, mortgages, and an overall less stressful life. While accessing those things is fantastic, it’s not the be-all-end-all. People with bad credit can still get cars, mortgages and anything else they want, there are just more challenges and limitations along the way. Good credit or bad credit, you can still work toward the things you want in life and feel fulfilled by what you’ve built.