On any regular day, you likely don’t think too much about the effect your credit score is having on your life. After all, you probably consider it a distant number that only affects the bigger things. Therefore, you don’t ponder your score all that much.
But it actually does have an effect on your day-to-day quality of life, no matter how subtle. Here are some of the things that a bad credit score will impact in your daily life.
1. Applications for Credit Cards
When applying for a new credit card, a lower credit score will limit your options. Issuers are less likely to approve you for cards that provide things like cash-back benefits and lower interest rates. In turn, higher rates make it harder to pay off your debt and spend money wherever else you need to. In short, a lower credit score will cost you much more money than a higher one.
All of this doesn’t mean, however, that you’re out of options for using a credit card to improve your credit score. You can always apply for a secured credit card to build your credit for the future. Because these cards typically require an initial deposit or funds transfer, they reduce the issuer’s risk and thus are easier to qualify for. Secured credit cards are a sort of stepping-stone for those with low scores who want to improve them.
2. Insurance Premiums
Insurance companies are all about managing risk, and they’ve discovered that customers with lower credit scores are more likely to make claims. That’s why a whopping 92% of insurers check customers’ credit scores when determining their car insurance rates. This means that even if you have insurance when necessary, your out-of-pocket cost will be higher with a low score.
On the same principle, insurers also factor in your credit score when you purchase renters or homeowners insurance. They consider your credit score an accurate indicator of the risk you present and price their policies accordingly. It’s easy to get stuck with unaffordable premiums, which will make it harder to keep up with payments and cause you stress and anxiety.
3. Your Housing Choices
Today’s hot housing market shows no signs of cooling down. Whether you’re looking to rent or buy, costs are high and competition is fierce. If you have a low credit score, you may be denied the apartment or house of your dreams.
Like credit card companies and insurers, landlords check your credit to gauge your overall trustworthiness. They want the rent paid on time every month, and a low score may convince them that you don’t dependably pay your bills. Even if they do decide to rent to you, your required security deposit may be higher. This is due to how much the landlord believes they can financially “trust” you with the property based on your score.
So, in saying that, if you are ready to apply for a mortgage, speak to your local mortgage broker in order to get your loan approved. Mortgage brokers are able to provide you with valuable information to assist your decision in obtaining a mortgage, and qualifying for one requires — you guessed it — a decent credit score. If yours is low, you may not be approved for the loan amount you request, meaning you’ll have to settle for another house. Alternatively, you may get approved but at higher interest rates, meaning you’ll pay far more over the life of the loan.
4. Vehicle Loan Approval
As with home loans, so it is with vehicle loans. The approval process for car loans proceeds in much the same way as for mortgages, with your score affecting loan amounts and rates. If you don’t qualify for the loan amount you request, you’ll either have to pay more down or settle for a lower-cost vehicle.
Many times, this more affordable car will be a used one. While used cars can be a good investment, they might also present higher maintenance and repair costs. Typically, these will not be covered by a warranty. If your used vehicle spends more time in the shop than on the road, it will be more costly in time and money. You’ll be spending more only to be worse off financially.
5. Job Prospects
The job application process doesn’t always require a credit check, but it may if the position involves financial dealings. You’re less likely to land such a role if your credit history doesn’t reflect historically good habits with money. This can also be the case if you are being considered for a raise. The company may use your credit history to decide that somebody else will be more deserving of their investment.
You’d be surprised at the factors a company will consider even when they are only tangentially related to a position’s responsibilities. Again, your credit score is a stand-in for your general reliability. A low credit score can make employers see you as not only unworthy of financial responsibility but as an actual liability.
Financial history is the main influence on your credit score, which in turn is a significant influence on future opportunities. It’s not impossible to get stuck in a loop where bad credit often prevents you from improving it. That’s tragic, as all of these results of bad credit can be quite costly. Taking steps to improve your score, such as paying bills on time and spending prudently, will help in the long run.