Perhaps you will agree with Your Personal Financial Mentor that most people are aware of the concept of credit ratings. Alas, the importance of building up a solid credit history is not all widely known or appreciated.
Just to establish a common background to this article, a credit rating agency (CRA) collects financial, personal and any other kind of data for every person and then uses a pre-defined and unbiased scoreboard system to decide if the person is credit worthy. This score is, in turn, used by various government and private entities that deal with business or transact with the public.
Being credit worthy implies that one has a responsible attitude in handling credit and can be rewarded with the privilege of fewer expenses and more savings. It is similar to a teacher grading all the students, rewarding the high-performing ones and punishing the underachievers, but also giving them the chance to get back on track.
Where and how can credit worthiness affect daily life? It serves to identify the risk factor associated with a person, either monetarily or socially. The higher the credit ratings, the lower will be the risk. A parent’s biggest worry in life is affording a good education for their children. Students do not have much of a credit history; colleges will check how credit worthy the guardian is, before granting a student loan. Credit card companies will grant higher credit limits and lower interest rates, dream statistics for anyone, if they find a strong credit history.
Another example would be when a person applies for a mobile phone. The supplier will first contact a CRA (sometimes maybe more than one) to check if this is a credit worthy applicant. An employer considering a candidate for a vacancy will use the CRA ratings to guarantee his credit worthiness, and thus, his reliability.
If a person has been denied one of these services in the past due to a poor credit rating, he / she would be all the more eager to improve the record and be labeled credit worthy in society once again, akin to parole after serving a criminal sentence.
It is now clear why it is desirable to be highly credit worthy. One needs to request for a self-scoring report regularly to check for false data and discrepancies among various CRA reports, else suffer a bad credit history and lose out on all the aforementioned perks. A credit worthy person is a reliable, responsible, stable and honest citizen: an asset to the country.