Learn How Saving Helps You Maintain a Healthy Credit Profile
Many of us regard savings as a secondary need, as we have the freedom to address any expense with the swipe of a card or click of a button, ignoring the fact that credit cards entail substantial interests, while savings account cost a negligible amount, in the form of annual charges. There are many reasons to have a healthy savings account with the biggest being to answer the most common question in our mind – how to repair credit or improve credit rating. Though your credit score is not calculated on the basis of your income or savings – which makes lending fairer as lenders only consider your credit history for risk assessment and to decide the rate of interest they need to charge on your loan – it is always advisable to save more in order to manage your finances better.
Here are some of the ways in which your savings may help you maintain a good credit score.
Be Prepared for Unexpected Expenses
Life is unpredictable and there are times when things may not go as planned. When our car meets with an accident or a portion of our house demands an urgent reconstruction, we need immediate access to funds, and for most people, credit card is the first resort. We use our credit cards, and at times, even max out the limit without realizing that extensive credit utilization has a negative impact on our credit score. Having some savings may turn out to be the savior in such situations, by ensuring that your credit score doesn’t get hurt when they arise.
Escape the Minimum Payment Trap
Many of us consider minimum payment as the easiest way to keep the credit card accounts from becoming delinquent. It may, however, take them several years to make full payment of the balance, which eventually hurts the credit score. Your savings enable you to pay off the balance in full, which may also have a positive impact on your score.
Get Loans at Low Interest Rates
Lenders always perform a risk assessment before lending the money. A low credit score because of high credit utilization and non-payment of balance may present you as a risky borrower in the eyes of the lender, and therefore, reducing your chances to negotiate the rate of interest. If, however, you have a substantial balance in your savings amount, you would be in a better position to negotiate with the lender and get a better deal.
A Few Last Words
Even if you end up overdrawing your savings account, it usually doesn’t show up on the credit score, unlike when you max out a credit card. Saving is important from the safety and security perspective of an individual. Maintaining a healthy balance in your savings account not only helps you during rainy days, but also plays an important role in maintaining a healthy credit score. If you have any questions on how to improve maintain a high credit score, our team of experts will be happy to clear the smokescreen.