Even if you try to avoid debt, you’re going to need a good credit score. Your score gives the companies you plan to do business with an idea of your trustworthiness and reliability. And although it may seem unfair, your score indicates whether or not you’re a safe bet for lenders.
You may think that credit scores only matter when you’re applying for loans, but think again. Here are six ways your credit score impacts your life that you may not have considered.
1. You May Pay Unnecessary Deposits
Imagine leaving $100 or more of your hard-earned money at your utility provider’s office, without anything to show for it. This could be your fate if you don’t have a good credit score.
More often than not, utility companies and cell phone providers check your credit before approving you for an account. If you don’t meet their creditworthiness criteria, you could be parking upward of a hundred dollars in their accounts instead of yours.
If you’re unsure of where to start when thinking of building credit, know that your on-time payment history is paramount. You can boost your score by having a credit card that you pay on time and in full.
However, it can be hard to secure a credit card if you have no or poor credit history. If that’s the case, you can build credit with a credit builder card like Chime’s. You can generally qualify for such cards no matter your current credit situation.
2. You Might Miss Out on Things You Want
There’s no shortage of deals, special-interest financing, and discounts for the newest, coolest, and best products and experiences. The thing is, most of them require a credit check — even if you just want an interest-free deal. If you don’t pass the credit check, you may have to forgo a great opportunity. Or you’ll have to pay for an item in full and upfront instead of paying overtime without interest.
You could afford the hot tub you’ve dreamed of by spreading the price across five years at 0% interest. But this fantasy is only your reality if you pass the credit check. If your credit score doesn’t meet the criteria, you can say goodbye to your six-person soaker. Don’t miss out on your relaxing evenings just because you haven’t been mindful of your credit score.
3. You Could Pay Too Much for the Basics
Raise your hand if you like to overpay — is your hand up? Didn’t think so. Essential services like car insurance companies often consider your credit when pricing your premium. If your credit isn’t up to snuff, you may end up paying a higher monthly rate. That higher rate can add up and cost you hundreds each year.
Like death and taxes, some things are just unavoidable — and insurance is one of them. Auto, renters, and homeowners insurance are all items that are essential to covering what’s yours. It’s in your best interest to ensure you pay the right price for the right coverage and nothing more.
4. You Could Get Passed Over for Your Dream Job
We all know the interview process is based on trust and requires that you present yourself in the best light. Employers need to do their due diligence to ensure they’re offering an open position to the best and most trustworthy candidate. This is especially true if your potential new role would make you responsible for finances or sensitive information. No matter the level of the position you’re pursuing, companies are within their rights to check your credit.
Many employers conduct a soft credit check as a part of the background check process. This peek into your financial record can give them an idea of whether you can be trusted with sensitive information. Be aware that if your credit score is low enough to give them pause, they may reconsider. You could get passed over in favor of a candidate with a better financial track record.
5. You Might Not Get Approved for a Loan
It’s the big one — your credit score is the make-or-break factor that determines whether you can close the deal. If you are in dire need of a new ride, you don’t want to be hoping for an exception. And when your dream home comes on the market, you want to make sure your financial house is in order.
Lenders have their own unique criteria to follow when they consider loan applicants. If your credit score isn’t within range, you may not be approved for the dollar amount you want. When you’re shopping for cars, that means you’ll have to settle for a lesser vehicle than you were hoping for. When seeking a mortgage, it means that your dream home will stay beyond your reach.
6. You May Have High Interest Rates and Low Credit Limits
If your score is sufficient enough to be approved for the loan you’re considering, always ask about the rate. Lenders offer the best rates to customers with the best scores because higher scores suggest a lower level of risk. If your score is on the lower side, you may be paying a higher rate. This higher rate can cost you thousands more over the life of the loan.
When you’re applying for a credit card, a low credit limit can hurt you. The lower your limit, the higher your credit utilization rate will be even when you’re just using your card for daily necessities. With a higher credit limit, you have better control over your utilization, which is an important aspect of your credit score.
Your credit score is based on several factors including on-time payment history, account age, and other credit inquiries. Using this information, lenders can get a good idea of what kind of customer you may be with their institution. If your score is good enough to get the loan but too low for the best rate, beware. Lenders will hedge their bets by charging you more to cover the “what if” associated with your low credit score.
Credit scores are essential for doing business in the modern world and they’re an important measure of your financial health. Take the time to carefully consider everything that’s impacting your financial picture, especially your credit score. You should check both your credit score and your credit report regularly to keep a close eye on your performance. Your future loan terms and interest rate will thank you.