What You Should Know About Good Credit And Bad Credit
Below is a MRR and PLR article in category Finance -> subcategory Credit.
Understanding Good and Bad Credit: What You Need to Know
Overview
While most adult Americans, and even many minors, have some form of credit or debt, few truly grasp how it impacts their daily lives.
Credit Basics
Credit ratings are influenced by how you manage debt, whether through timely payments, late payments, or defaults. People typically accrue debt via credit cards, auto loans, or mortgages. Personal credit ratings can be built or damaged using credit cards. Paying your balance on time boosts your rating, while missed payments can significantly lower it.
Credit Score Range
Credit scores generally range from 500 to 800, with 800 being excellent and 500 being poor. A higher credit score means lower interest rates. For example, a young person with little credit history might face interest rates between 12% and 22% APR (Annual Percentage Rate). As they establish themselves as reliable borrowers through timely payments, their rate may drop to single digits.
Importance of a High Credit Score
A high credit score is crucial when making major purchases like a car or a house. These typically require long-term loans and/or significant down payments. With a good credit rating, buyers benefit from lower APRs and smaller down payments. Conversely, those with poor credit often face higher interest rates, need larger down payments, and may even have to extend loan terms. For instance, someone with excellent credit might make a 2% down payment ($2,000) on a $100,000 home at a 6% interest rate over 30 years. Meanwhile, a person with poor credit may need to pay $5,000 to $10,000 upfront and could incur higher rates over a longer period.
Conclusion
As these examples show, maintaining a good credit rating saves money both in the short and long term. Paying off debts promptly is a wise investment for your financial future.
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