Your credit score affects nearly everything finance-related in your life, from credit card and loan applications to even your romantic life.
Unfortunately, the prominence of credit in our lives means that you could find yourself in quite a pinch if you ever miss a payment or two, consistently max out your credit cards, or have no lines of credit in your name yet.
In order to keep your credit in good condition, it’s important to understand exactly what your credit score effects. It may seem obvious that a good credit score is well, a good thing to have, but studies have shown that many of us are a little delusional when it comes to how good our credit scores really are.
To avoid falling into this trap, you should regularly check your credit report to see how you’re really doing. By law, you can obtain one free copy of your credit report every 12 months, so you don’t have much to lose! If you’re still not convinced that credit plays an extremely influential role in your life, then consider the following ways credit impacts you.
How Your Credit Affects Everything
Credit Cards and Loans
Whenever you apply for a line of credit like credit cards, mortgage loans, auto loans, personal loans, and even private student loans, the lender runs a credit check. This helps them determine whether you’re worth the risk, and if so, how much interest they should charge you. If your credit score is fair, poor or nonexistent, then you might be denied credit and have to look into secured credit options before you qualify for a standard credit card or loan.
Credit card and loan applications are some of the instances where your credit score matters most, so don’t risk lowering your credit score with multiple applications for credit unless you’re confident you’ll be approved, based on the lender’s guidelines.
Your credit score can also significantly impact your housing situation. Whether you’re a renter with poor credit or a would-be homebuyer with a sizable down payment saved up but less-than-stellar credit, you might be surprised by just how big of an influence your credit score can have.
As a renter, you may be denied housing if your credit score bad, even if you meet the other requirements. This can be incredibly frustrating for many people, especially if the only way around the problem is looking for housing in a less desirable area, having to put up two full months’ worth of rent as a security deposit, or even being forced into a month-to-month lease.
Your credit score may also affect your ability to qualify for payment plans on big-ticket items like televisions, computers, smartphones, or furniture. Without access to an easy payment plan, you’ll have to pay for the entire item upfront.
If you need to replace a broken phone and are ineligible for a payment plan, you have a few options. You can wait until you can afford it or put it on your credit card. The latter increases your credit usage ratio and could lead to a decrease in your credit score as a result.
Did you know that some insurance companies evaluate your creditworthiness when it comes to determining your annual premiums? This is known as credit based insurance score. It’s not legal in every U.S. state, but in states that do allow it, a vast majority of homeowners insurance and auto insurance companies use credit based insurance scores to assess how likely a consumer might be to report insurance losses.
In other words, a bad credit score could affect your homeowners’ insurance rates, as well as your car insurance premiums. In fact, studies have suggested that car insurance costs as much as 90% more for drivers with bad credit.
A low credit score could also impact your health and life insurance premiums, as you may be viewed as a risk to insurers if you’re frequently late on payments for other debts in your name.
Credit Truly Affects Everything
As you can see, your creditworthiness involves so much more than just your ability to get another credit card or good interest rates on your next loan. This is why we’re so obsessed with paying off debt quickly and getting your credit score back in good standing.
Don’t let an average or poor score negatively impact your life. Even if you’re not expecting to take out a loan or new credit card any time soon, there are too many advantages to boosting your credit score to ignore. It will take time to rebuild your credit. But, you’ll ultimately be in a much better financial position once you’re in “good” or “excellent” territory.