Why Maintain A Good Credit Score

The importance of maintaining good credit scores cannot be overemphasized

. An individual's ability to engage in various transactions or activities--such as obtaining a bank loan, availing oneself of utility services, purchasing goods via loans and even getting a decent job--largely depend on his credit grades.

People's ratings, assigned by so-called credit bureaus, are determined by their history of paying or defaulting on obligations, and the level of debts they are currently servicing.

These bureaus collect and maintain the credit information of people. The information is sold to clients, such as banks and other companies that use the said data for business decision-making purposes.

Needless to say, people who have had a history of defaulting on loans are likely to have low grades. On the contrary, those who have kept their payment history clean are assigned high grades.

Moreover, consumers who have incurred huge debts vis-a-vis the income they generate, which reflects lack of financial discipline, are also normally assigned poor grades. On the other hand, people who have limited their debts within perceivably manageable levels are given favorable scores.

An individual must be conscious about the assessments made of him. Without a favorable rating, it will be difficult, if not impossible, for him to get a bank loan needed to finance his planned purchase of an automobile or a house, or his intention to put up a business.

Banks take into account an evaluation report on an individual in deciding whether to grant him a loan. A low rating is usually deemed as a reflection of the tendency to default on financial obligations, thus, it is unlikely to have his loan application approved.

Some employers, especially multinational and large companies, consider the assessments of an applicant in deciding whether to hire him. If all other influencing factors were equal, a job applicant who has a good standing is more likely to get hired than someone whose financial background is tainted. This is because some companies equate the ratings with people's level of responsibility and discipline.

Furthermore, there are also utility firms, such as water and electricity providers, that consider people's grades in approving or disapproving their service applications. If one does not want to have problems obtaining basic services, therefore, he must be able to show favorable payment history.

Given the wider range of transactions and activities that hinge on one's ratings, an individual must take good care of his image. He can do so by keeping himself from being exposed to huge debts, and by promptly and religiously paying his financial obligations.

by: Leo Chu

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