Knowledge — 2 years ago

How Can a Credit Score Affect my Finances?

by Rick S.

How Can a Credit Score Affect my Finances

Learn About the Effects of Your Credit Score
Are you constantly worried about your credit score? You and Millions of Others! Read this Article!

A credit score is considered as the fingerprint of your financial management. A good score tells people and institutions as to how responsibly you manage your finances and money and if they can trust you in various situations. The entire financial structure and various other markets thrive on credit scores in the US. Therefore, it is imperative that at no point you neglect to maintain your good score.

A good credit score, in general, will make you a trustworthy individual for the lenders in the market while a low credit score makes you lose your credibility. It has also been seen that smallest of things such as renting an apartment also depends upon this score.

How Can a Credit Score Affect my Finances

Let’s look at how can a credit score impact your finances and your life in the following ways:

Getting your dream home – You have finally found a place that you want to either rent or buy and settle in. But your chances of getting the property depends upon your credit score. A property manager when reviewing your application will typically first check for rent-to-income ratio followed by your profile and then the credit history. So, if your landlord sees you as a trustworthy person who sticks to his/ her payment schedule, then they would be comfortable taking you as a tenant or lending out their property.

Loan approvals – Your auto-loan application approval and the associated rate depends upon your score. With a low credit score, you are less likely to qualify for a loan.

Saving on interest rates – A low credit score makes you vulnerable to getting a higher rate of interest (not just limited to banking institutions). Insurance agents, mortgage companies, your business clients and even utility companies are likely to charge you a higher fee or interest rates since you would be flagged as a high-risk person.

Credit Score

Pre-approvals – A good credit score makes you eligible beforehand for various schemes, offers and even cards that offer great rewards and cash-back options. By not making timely payments, your score goes down which impacts your credit limit and the use of good credit cards.

Refinancing options – A credit line makes it difficult for you to qualify for refinancing options. You can actually end up paying extra money against the mortgage despite you making timely mortgage installments in the past. A similar trend happens with the refinancing of student loans in order to reduce interest rates.

Hiring prospects – Employers in the United States today have the ability to run a credit background check for their prospective recruits. While the report layout for employers is different however, it is comprehensive enough to showcase any red flags or any concern areas in credit. Employers typically use this data to gauge if the incumbent is trustworthy and also reduce the risk of a possible theft in the future.

Credit Score Effects

Security deposits – Utility companies are likely to charge you a security deposit if your score is bad. This deposit can cause inconvenience if you plan to relocate. Similarly, cell phone providers may not give you the latest phones on a contractor you may be forced to pick a pay-as-you-go plan which usually turns out to be expensive.

What should you avoid to not impact your credit score?

  • Do not miss your payment due dates
  • Keep your credit utilization under 30% (the best would be 10%). FICO score factors in the use of high credit utilization when calculating your score.
  • Every credit inquiry hits your score. Avoid requesting for too much new credit within short time intervals.
  • Defaulting – Charge-offs, bankruptcy, foreclosures, settled accounts are some of the negative account information which hit your credit score. It takes a long time to repair the damage caused by these actions.
Improve your credit score with these helpful tips!

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