Most consumers are not aware that using credit irresponsibly can affect their finances in the future. Using excess of a certain sum on your card, delaying monthly payments and defaulting on your loan will tremendously impact your credit score. Maintaining a low score implies that you are on an uphill battle to a bright financial future.
This score is defined as a numerical expression of your credit background. It ranges between 300 and 850. It generally determines how creditworthy you are to lenders, future employers, landlords and even loved ones. Basically, it can affect all areas of your life. Specifically, it can impact your finances in the following ways:
It Affects Your Employment Eligibility.
Depending on which state you live in, future employers can ask credit agencies for your credit report before they hire you. They don’t see your exact credit score, but they can tell how much debt you have and how promptly you’ve been making payments. This information can indicate whether your score is high or low.
The reason many employers do this check is to know in advance what potential complications are likely to arise. For example, you may be a candidate for a job that involves direct contact with money like cashier, accounts and finance.
If your report reveals a lot of missing payments and owes a lot of money, the employer will see you as a risk. Your financial stand could give them the sense that you could potentially get involved in embezzlement. This reduces your employment prospects and thus your finances.
It Will Affect Your Mortgage Rates.
Sustaining a good score establishes that you’re good at making your outstanding payments and other financial obligations promptly. This encourages lenders and gives them a guarantee that you will pay them back without a problem. This will attract a lesser interest rate on your loan.
However, a low credit score will bring on a higher rate owing to the risks involved in possible delayed payments or non-payment down the line. The difference between 5% and 5.5% accumulates to massive amounts of money in interest which could have been prevented.
Is your score above 760? You will be considered for a low rate mortgage. A rate of 640 and below might not qualify you with many lenders. If they accept you, you will pay massive rates. Taking the vital measures to elevate your score should save you lots of money.
It Determines Your Acceptability for a Business Loan.
Have you thought that getting a business loan has no connection to your personal credit? You’re mistaken! Financiers need your score to weigh your financial soundness and give them an indication of whether you’ll be in a position to make payments promptly. As far as they are concerned, your economic behavior is representative of your business financial behavior.
Lenders have different credit score requirements, but for SBA and bank loans, the minimum acceptable score is 640. Anything below that puts you on a slippery slope to rejections and massive interest rates from various lenders. Your poor score will indicate one or all of these three issues: being bankrupt, late payments and missed payments. These issues typically last up to a decade on a credit report. A couple of lenders will deny your application in this case.
It Affects Your Credit Cards Usage.
Having a high credit score affords you access to credit cards that have bonuses and prizes. A poor credit score may put you in a position where you are unfit to use credit cards to buy what you need.
Providers can bring down your credit limit because of delayed payments and they will reject your proposals for a lowered annual percentage rate. You are also liable to have your account closed.
It Affects Your Ability to Rent a Home at a Good Price.
Landlords are more likely to take on tenants with a high credit score because of their commitment to their financial responsibilities and make quick payments. In some cases, because of your high score, you would be able to bargain with the landlord for a better deal on the rent. This would cut the total amount you will spend on rent each year.
It Will Affect Your Monthly Bills.
Your month-to-month service providers like cell phone companies and insurance companies will levy high fees if your score is low. Utility providers regularly monitor residents’ credit scores before giving services like gas, electricity, and water to an apartment or home. If your credit score is low, you may have to part with a substantial payment ahead of time for these utilities.
It Affects Your Refinancing Ability.
If you already own a home that you’re paying for monthly, refinancing presents you with the chance to pay lower interest rates. A low credit score removes any possibility of you refinancing your home.
This suggests that during the lifetime of your mortgage, you would pay tons of money over and above what you would pay if you were able to refinance. This would have severe repercussions on your financial future.
It Affects Your Saving Potential.
A low credit score could mean that your debts are a lot more than your income, making it a nightmare to pay your outstanding payments promptly. It could also indicate that you are spending more than you make and finding it difficult to meet your financial responsibilities.
This puts you into more debt which becomes a never-ending cycle and you are finding it hard to catch up. What worsens this scenario is the high rates on your realistic loans in addition to that. This affects your capacity to save any money for a future nest egg. This could lead to you needing to work with a bankruptcy lawyer to determine your financial situation and potentially declare bankruptcy.
It Has an Impact on Your Insurance Premiums.
Insurance companies are inclined to confirm your credit soundness and this will have an effect on the premiums you will pay. They don’t necessarily need your score, but it contributes to your report which determines their final decision.
Certain states forbid the use of credit scores for the car or home insurance. Some insurers do still pick out relevant information from your credit history. They need to analyze your possibility to make claims and pay premiums. Low scores will multiply the amount you would pay with a high credit score.
It Will Affect Your Retirement.
Spending high amounts of money on rates and premiums can result in spending unbelievable amounts of money over the years. This is money that could have been invested and used during retirement.
Sadly, many retirees will either have to depend on their children or other relatives for survival. Your quality of life will take a hit because changing your way of life is obvious. You will forfeit any financial decisions concerning you.
Improve Your Credit Score to Secure Your Financial Future.
There is hope if you have a poor score. Begin with taking intentional action to boost up your credit in the following ways:
- Obtain a copy of your credit report as soon as possible.
- Make sure all your account details are accurately documented
- In the event of any minor or major errors, notify them immediately to the credit bureaus
- Limit your credit card usage to below 30% at all times
- Mix up your various credit products
- Determine to pay off your debts with a set standard amount every month
- Off-set your monthly utility bills promptly
- Avoid wasteful credit purchases
Your score considerably contributes to your financial security, so the earlier you begin working to boost it, the better. It’s possible, and it’s best to start right away. By being alert with your credit, you will have the opportunity to obtain loans to increase your income. Employers will rely on you to take on sensitive roles in their companies, and you will spend less on interest rates.
This will lead to fewer expenses, and you get to retain money for future investments and savings. Towards retirement, many people will be cutting down costs and adjusting to an undesirable way of life to survive. If you’re serious about aiming for a high credit score your financial future will be secure and you will retire comfortably.
At the end of the day, you want to keep growing your wealth to the level where it can last beyond you. Use these tips to secure your financial future.