The European debt crisis. Higher unemployment. Falling stock markets. These are some of the headlines that have been transmitted over the air, internet and in newsprint this summer. These headlines and their accompanying stories have not promoted faith in our current economic condition. In fact, many believe that our economy is in crisis. With this in mind, I was recently asked by a neighbor, “Why should I maintain good credit in a bad economy?”
Even though our collective faith in the economy has been buffeted by the current economic storm, there are silver linings to the clouds currently stationed above us. The current Federal Prime Interest Rate is at a low of 3.25%. This means that the interest rates that lenders charge for initial loans and refinanced loans on large purchases such as homes and automobiles remain low. Now is simply a good time to save money on the purchase of homes and automobiles.
In order to make a large purchase on credit, you must show that you are a good credit risk. Those who assess lending risk, such as mortgage underwriters and banks, use evidence of good credit to determine whether you are capable of maintaining your financial responsibilities. Currently, scores between 620 and 650 may be sufficient to get a mortgage but you will almost certainly pay higher interest rates. On the other hand, if you have a credit score between 700 and 850, you should receive far better interest rates on loan and, as a result, will likely benefit from opportunities to save more money over time.
So, is maintaining good credit important even though we are in a bad economy? Yes. Good credit may clear the path toward saving money on the larger purchases or refinancing that you have been waiting to make.