You know that you should care about your credit score, but you’re not exactly sure why that is. To you, it’s just a ranking sitting on top of a report. What does it matter? The truth is — it matters a lot. Find out why it’s so important.
Loan Approval
Your credit score is a rating of your creditworthiness. It shows lenders how responsible you’ve been in the past with your accounts, which will help them estimate whether it’s risky for you to take on a new account, like a credit card, personal line of credit, mortgage loan or auto loan. A high score means you’re a low-risk borrower, which increases your likelihood of getting approved for these types of credit accounts.
Having a better chance of loan approval is really useful when you’re dealing with an emergency. If you don’t have enough savings to cover an urgent expense, you can consider a personal line of credit through CreditFresh as a potential solution. With an approved personal line of credit, you can use temporary funds to pay off the emergency expense quickly and then follow a steady repayment plan afterward. It can be a huge source of relief when you feel like you have few options available.
But you may not get approved for a personal line of credit loan when your credit score is too low. Or at the very least, you may get approved for the loan, but you may not get the loan terms that you’re hoping for.
Loan Terms
It’s true that your credit score will impact the loan terms that are offered to you. Applicants who have higher scores are usually offered lower interest rates than applicants with lower credit scores. This is because applicants with lower scores are seen as riskier borrowers. They are likely to borrow more than they can afford to repay and default on loans. A higher interest rate can incentivize these applicants to borrow responsibly and pay their bills on time.
A provider may also request people with low scores to meet more application requirements than those with high scores. When your score is low, you might be considered too much of a risk for the provider to take on alone.
In order to mitigate that risk, the provider may ask for this type of applicant to get a co-signer for the loan or to put down a piece of collateral to receive approval. This should give the provider a little more security in the arrangement. In the case of a loan default, the cosigner will tackle the payments or the collateral will be seized to recoup any losses.
Employment Opportunities
Are you considering applying for a job in the financial sector? Well, your credit score will be incredibly important for achieving this goal.
Many employers in this job sector will run soft credit inquiries on job applicants to see what their credit scores happen to be. If the employer feels like the score is too low for the company’s standards, they could reject the applicant based solely on that information. They may feel that the applicant is not capable of handling personal financial matters responsibly, and therefore, they may not be capable of handling financial matters in the workplace. So, the employer won’t take on the risk of hiring them to fill out a financial position in the company.
What if you don’t want to work in the finance sector? What if you want to be an entrepreneur and start your own business venture? Your score could make that more challenging, too.
Unless you have a significant amount of savings or investment capital on your hands, you will need to take out a business loan to get your venture off the ground. Banks and other lenders are not likely to approve your business loan application when your consumer score isn’t great. Without that approval, you might not have enough funding to make your entrepreneurial dreams come true.
So, a bad score could block you from following several career paths. If you’re worried that your score is going to block you from reaching your future ambitions, you should try your best to change it. Bring it up to a higher level. You can do this by consistently paying your bills on time, minimizing your credit utilization ratio, and spacing out your applications to new credit accounts. Applying for too many new credit accounts in a short amount of time could damage your score. Pace yourself.
Housing Opportunities
A good credit score can come in handy when you’re looking for new housing. If you’re hoping to buy a house, having a good score will increase your chances of getting approved for a mortgage loan and receiving favorable mortgage loan terms.
It can come in handy for renting an apartment, too! That’s right, landlords sometimes run credit inquiries on their rental applicants. If they feel like someone’s score is on the low end, they will be more likely to reject the application because they believe this is a sign that the applicant may be financially irresponsible. A financially irresponsible renter may not pay their rent (along with any other built-in fees and charges) in full or on time.
Utility Bills
Whenever you move into a house or apartment, you will have to set up utilities, like electricity and internet. You will have to contact these utility services and create an account for this brand-new address.
What you may not know is that utility companies often look into applicants’ credit scores to determine the terms of their new accounts. If the credit score is not considered good by a utility company, it may require the applicant to make a security deposit in order for the account to get approved. So, you may have to pay extra just to open up your account and receive the service. You’ll have to pay before your first bill even comes in!
Another utility that you may struggle to get is a cell phone contract. Cell phone providers may check your credit score when you’re trying to sign up for a brand-new contract with them. If your score seems too low, your contract terms may be less favorable. Like the other utility companies, the cell phone provider may require you to put down a security deposit to get your application approved.
Or the cell phone provider may only offer you a prepaid plan, where you must purchase the cell phone first before you can access the service. This can be a bigger financial burden since you’ll need to have enough funds to cover the cost of a new phone out of pocket, instead of paying for the phone in small increments over the course of a long-term contract.
Your credit score is more than just a number. It’s a big deal. You can see how it influences your day-to-day life, with your job, your home and even the bills that fill up your mailbox.