Chapter P5, Problem 2RQ

To determine

The reason why it is important to maintain an excellent credit score and the ways that bad credit can hurt someone and how good credit can help to achieve some of personal financial goals

Explanation of Solution

Due to the following reasons, it is important to maintain an excellent credit score:

1. To borrow money at lower interest rate in the future, it is essential to maintain an excellent credit score because it will assure the creditor or lender about the repayment of loan.
2. Excellence in credit score helps to find the better job opportunities because it supports the employer to understand the financial health of the candidate as it can impact the performance of the employee at work.
3. Moreover, a person can get better deals in loan credit such as good deals for credit cards and avoid unfavorable terms of the loan if he/she has a good credit score.

A bad credit score can hurt someone in following ways:

1. A bad credit score will create difficulty in the approvement of loans and it will become impossible to get a loan at lower interest rate.
2. It affects the job opportunities too as the employer thinks the employee will not perform well on the job if he/she is financially weak or had bad credit score.
3. Bad credit score also impacts the social and personal life of the borrower.

A good credit can help to achieve some of personal financial goals through following ways:

1. A person can access better options with more lender choices in the market which will personally help him/her to reduce his/her cost if he/she pay attention on the credit score such as not exceeding credit limit.
2. A person can achieve personal happiness if he/she has a good credit because it may help the person to buy goods which he/she wants as a person can use automatic payments.
3. Through timely payment a person can achieve good credit which help him/her to access better paying jobs.

Economics Concept Introduction

Introduction: A credit score represents a person’s numeric information about the history of credit payments in the credit report that shows how likely a person can repay the loan. A creditor can use this information to lend money to the borrower.